Preamble

The House met at half-past Two o'clock.

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH TRANSPORT DOCKS BILL (By Order)

Order for Third Reading read.

To be read the Third time upon Wednesday next.

Oral Answers to Questions — ENVIRONMENT

Petrol (Lead Content)

Mr. Barnes: asked the Secretary of State for the Environment when he now intends to make a further statement about the lead content in petrol.

The Minister for Transport Industries (Mr. John Peyton): As soon as possible.

Mr. Barnes: Is the Minister aware that there is evidence from the United States that young children are more at risk from airborne lead than adults because of their higher metabolic rates? His Department has said that there is no evidence of danger to health at the present level of lead emissions, but with petrol consumption rising as fast as it is will he not agree that it is very urgent that action should be taken as soon as possible?

Mr. Peyton: My answer was not intended in any way to suggest that we do not take this matter very seriously indeed. It is, however, a complicated problem as I am sure the hon. Member will recognise and there is a good deal of evidence on it. There are, however, a good many interests concerned on the economic side, the health side and the medical side. We must be certain that

we give the right answer but we will give it as soon as possible.

M3 (Tree Planting)

Mr. Grylls: asked the Secretary of State for the Environment how many new trees are being planted by his Department alongside the M3 motorway between Lightwater and Sunbury.

The Under-Secretary of State for the Environment (Mr. Keith Speed): None at the moment, Sir. Detailed planting plans will not be prepared until the major earthworks are nearing completion.

Mr. Grylls: I thank my hon. Friend for that reply but will he bear in mind the urgent need to restore to their former natural beauty places that have been ravished by motorway works, albeit essential, such as in Chobham and Windlesham in my constituency? Perhaps an increase in the tree and shrub planting programme would help in restoring these areas to their proper state.

Mr. Speed: We take this problem very seriously and I can give my hon. Friend the assurance he seeks. He may be interested to know that my Department is currently planting over a million trees and shrubs each year on motorways and trunk roads.

Leadenhall Market

Mr. Mather: asked the Secretary of State for the Environment what proposals he has received for the redevelopment of Leadenhall Market.

Mr. Peyton: None, Sir.

Mr. Mather: Will my right hon. Friend consider, if he should receive such prosals, the preservation of these unique buildings of Leadenhall Market? Would he bear in mind that the site of the Roman Basilica lies to the north of these buildings and in any redevelopment that takes place will he see that proper facilities are afforded for excavation and preservation of this unique Roman site in London?

Mr. Peyton: The last part of my hon. Friend's question is a matter for consideration between my Department and the City of London authorities. Certainly we will keep all his other points in mind if and when proposals for development are received.

Domesday Book for the South-East

Mr. Hunt: asked the Secretary of State for the Environment when he expects the new Domesday Book for the South-East to be ready for publication.

The Secretary of State for the Environment (Mr. Peter Walker): I will shortly be meeting representatives of county councils in the South-East to discuss what information can be provided about land availability, and when. I will be looking to local planning authorities to publish as soon as possible detailed information about land on which house building can start within the next five years. 1 then intend publishing a collation of all this information.

Mr. Hunt: I welcome that answer and I acknowledge that the vigorous action taken by my right hon. Friend the Secretary of State is already having a discernible effect on house prices. Will he undertake, however, that if, when the Domesday Book is published, it reveals that large areas of housing land in the South-East are being hoarded for speculative reasons, he will consider the imposition of a levy on such unused land which would help to flush it on to the market?

Mr. Walker: I do not believe this would be a good way of flushing such land on to the market. Certainly, we have considered various proposals including the levy system but I have made it clear that if land is being hoarded against development we will consider compulsory purchase orders if local authorities consider them sensible and wise within the South-East planning strategy.

Maplin (Tanker Terminal)

Mr. Douglas: asked the Secretary of State for the Environment if he will make a statement on estimates which his Department has made of the size of vessel capable of using the proposed tanker terminal at Maplin.

Mr. Peter Walker: The PLA proposes to provide initially for tankers up to 250,000 tons deadweight and later 500,000 tons if required. These proposals will be considered in more detail before any issue of authorisation under Section 9 of the Harbours Act, 1964.

Mr. Douglas: Is the right hon. Gentleman apprised of the enormous cost of dredging to facilitate tankers, even of the smaller tonnage, getting up to the port facilities? Does he agree that if there were no airport at Foulness there would be no tanker terminal?

Mr. Walker: The PLA will have to put up a sound financial case based on commercial demand before any authorisation can be considered. We are building an airport there and we have made it clear that we shall allow port facilities only if they will not endanger regional policy. This is such a facility.

Mr. Crosland: As my hon. Friend has said, it is only because of the airport that the question arises. Is the right hon. Gentleman aware that there is still acute anxiety in the whole area, partly because of lack of knowledge of what is proposed? Will he at the very least extend the time he has given for representations on the Foulness consultation document? He has given only a small number of weeks, which straddled the local elections, and authorities in the area are finding it very difficult to make representations in time.

Mr. Walker: I do not believe this is a problem. We have issued a consultation document and the local authorities are informing us of their views in great detail The authorities that ask for an extension of time tend also to be some of those which have given us their views on the topic. There has been enough time. We have consulted fully and will continue to consult fully in all these matters.

Association Football (International Competitions)

Mr. Stanbrook: asked the Secretary of State for the Environment whether, in view of the result of the England and West Germany match on 29th April, he will initiate discussions with the appropriate football authorities in England, Scotland, Wales and Northern Ireland with the object of entering a single United Kingdom national team in future international competitions.

The Under-Secretary of State for the Environment (Mr. Eldon Griffiths): No, Sir.

Mr. Stanbrook: Will my hon. Friend give a positive lead in this matter? Does


he agree that we owe it to the British people, the originators of this sport, to provide the best available soccer team to compete in international competitions rather than dissipate our national effort into four separate channels? Would not an all-Britain team, including Best, Bremner and Banks, be a world-beater?

Mr. Griffiths: I am not sure that Scottish or Welsh football supporters would rejoice to see their national teams losing their identity in order to rescue England from its difficulties, which I am sure are purely temporary.

Mr. Cledwyn Hughes: Will the Minister also bear in mind that if Welsh football players were released by the League to play in international matches for Wales, Wales would be a match for England, West Germany or any other country?

Mr. Griffiths: The right hon. Gentleman is entitled to engage in a little propaganda for Wales. I hope he recognises that due to the efforts of the football authorities and my own Department the release of Welsh players is now much easier than it has been.

Mr. Kilfedder: Just as the total integration of Ulster within the United Kingdom would be best for the country in the long run, does my hon. Friend agree that what England needs is the stamina and skill of Scottish and Ulster players? Does he agree that with the magic of George Best in the game against Germany, England would not have lost?

Mr. Griffiths: I shall put that matter with the utmost seriousness to my right hon. Friend the Secretary of State for Northern Ireland.

Mr. Denis Howell: Is the Minister aware that although sports bodies welcome the interest of Members of Parliament we should be very careful before abusing the Order Paper of the House to discuss the sporting performances of any of our British sports teams and that this would be resented by sports bodies, which want our interest but not a political interference in purely sporting matters?

Mr. Griffiths: I agree with the hon. Gentleman that this is not a matter for Government, but he has a great deal more

experience than my hon. Friend in abusing the Order Paper.

Mr. Howell: Since I was Minister for six years and have been Opposition spokesman in the two years since that, for eight years I have never put down a Question on the Order Paper about these matters. Is the hon. Gentleman's remark in order, Mr. Speaker, or is it simply a cheap and disgraceful comment by a Minister who should know better?

Mr. Griffiths: It was not the hon. Gentleman's Questions on the Order Paper I was complaining about; I was complaining about the answers he used to give.

Mr. Speaker: These are not matters of order, but I think they are matters of taste.

Housing Finance Bill

Mr. Clinton Davis: asked the Secretary of State for the Environment what representations he has received from the Child Poverty Action Group concerning the Housing Finance Bill: and what reply he has sent.

The Under-Secretary of State for the Environment (Mr. Reginald Eyre): No representations have been received but copies of the group's pamphlet and discussion papers on the Bill were sent to my right hon. Friend for information. The rent rebates and allowances introduced by the Bill will do much to help children in poorer families, including single-parent families.

Mr. Davis: Is not the hon. Gentleman aware that the Child Poverty Action Group, Shelter and many other organisations have castigated these proposals, quite justifiably? Is he not aware that these organisations have unitedly condemned the Bill as a calculated attempt by the Government to force up the price of housing and that notwithstanding rebates this will cause extreme difficulty for very many poor people?

Mr. Eyre: I cannot accept much of the reasoning advanced in support of those arguments, because of the way the new scheme will give special help to the very poor.

Mr. Frank Allaun: Instead of causing several million families to undergo a


means test to apply for a rent rebate, would it not be preferable to withdraw this new compulsion on local authorities to make a profit out of their rents and instead to allow them merely to cover the cost of their housing?

Mr. Eyre: Of the tenants not receiving supplementary benefit, we estimate that 600,000 to 800,000 might be entitled to a rebate in the first four years. This compares with about 350,000 recipients under existing discretionary schemes.

House Building

Mr. Frank Allaun: asked the Secretary of State for the Environment whether lie will take steps to encourage building more council houses, particularly in view of the rise in private house purchase prices to levels beyond the possibilities of those on ordinary incomes; and if he will make a statement.

The Minister for Housing and Construction (Mr. Julian Amery): The present Government, unlike the last Labour Government, place no restrictions on the numbers of further dwellings which local authorities can build to meet local needs. There are welcome signs that the decline in the public sector which we inherited from the previous Labour Government is being halted. [Interruption.] I am glad to see, too, the substantial increase in private sector building and the continuing rise in home ownership.

Mr. Allaun: But what is to be done by young couples who cannot afford to buy their own homes on mortgage at the new exorbitant prices? Are they not dependent on council house building? Would not the best way for the Government to help therefore be to reverse their plans and instead increase the total subsidy for council house building from the present amp;£157 million a year to that for owner-occupiers of amp; £302 million a year? That would do more than anything else to improve council house building.

Mr. Amery: I am glad that the hon. Gentleman recognises that council house building is improving markedly, particularly in cities like London and Birmingham, where stress has been greatest. There was an 8 per cent. increase in London public sector building last year and a 26 per cent. increase in Birmingham starts——

Mr. Clinton Davis: What about council house building

Mr. Amery: —I am talking about council building. I share the hon. Gentleman's concern about first-time purchasers, and I am glad to see that in 1971 there were 370,000 of them compared with 300,000 in 1970 and that more than 30 per cent. of all houses mortgaged with building societies were mortgaged by people earning £30 a week or less. The truth is quite simple. For a long time everyone has been wanting to own his own house, and now at last many people have the money to do it.

Mr. Freeson: Will the Minister reconsider his statement about the figures for council housing sarts, which according to information his own Department publishes is quite inaccurate? Is he aware that the last monthly average published by his Department is a figure of 12,000-odd houses started in March compared with the average for 1970 of 12,800 and for 1969 of 14,700? How can he tell the House that there is an increase when there is a clear reduction?

Mr. Amery: I take the hon. Gentleman's point. What I should like to explain to him, because he understands about these matters with his long experience of local government, is that the decline in public sector approvals from 1968 to 1969, from 1969 to 1970 and from 1970 to 1971 has been as follows: a 19 per cent. decline between 1968 and 1969; a 19 per cent. decline between 1969 and 1970; and a 3 per cent. decline between 1970 and 1971. The curve is levelling out.

Mr. Skinner: asked the Secretary of State for the Environment what are the latest available figures for house building in the public sector.

Mr. Amery: In Great Britain there were 12,100 new dwellings started in the public sector in March, 1972, 700 more than in March, 1971, an increase of 6 per cent.

Mr. Skinner: Why is the Minister bragging? His right hon. Friend three years ago toured the country telling Tory1- controlled local authorities not to build council houses. Is he aware that when one subtracts from the figure he has given the 2,000 houses per month that are


taken out of the public sector and put into the private sector the amount of current council house building which adds to the total housing stock is the lowest for 20 years?

Mr. Amery: I am glad to inform the hon. Gentleman, whose interest in these matters I respect, that under my wise administration public sector starts in London in March, 1972, were 2,513 compared with 2,077 in 1971; in Birmingham 355 compared with 223; in Newcastle 63 compared with 49, and in Manchester 305 compared with 267; and that the only place where we register a drop, from 165 to 139, is Leeds.

Mr. Waddington: What does the Minister propose to do to persuade irresponsible Socialist councils to put the legitimate wishes of their tenants before party dogma? What does he propose to do to see that more council houses are sold to sitting tenants?

Mr. Amery: As my hon. and learned Friend knows, we have already lifted all restriction on the sale of council houses and encouraged local authorities to sell them at a discount of 20 per cent. and, with special authority, at a discount of 30 per cent. We are issuing shortly a circular re-emphasising the need to do this, both to meet the legitimate demand of sitting tenants and to ease the pressure on prices at the lower end of the owner-occupied market.

Mr. Heffer: Will the right hon. Gentleman stop being a knock-about music hall turn? Will he stop this nonsense that we are constantly hearing about the Government doing better than the previous Government and get down to the reality that too many people are still without houses? Irrespective of what the previous Government did and what this Government have done, no Government have built sufficient council houses for the people who require them.

Mr. Amery: I could not agree more with the hon. Gentleman that neither party has done enough to meet the needs of the people. But in answer to criticisms made it is only legitimate—and I am sure that the hon. Gentleman would do the same if he were in my place—to point out that we may not be doing well enough but at least we are doing better.

Building Land (Harlow)

Mr. Tebbit: asked the Secretary of State for the Environment if the 1,000 acres of building land at Harlow to which he referred on 27th April is within the present designated area.

Mr. Amery: The land in question would be outside the present designated area of Harlow new town.

Mr. Tebbit: I thank my right hon. Friend for that information. Is he aware that there is concern among people living outside the designated area of Harlow about just where the extra land will be? While we all welcome such a large extra acreage of building land, which will do a great deal to hold down land prices, we should all in my constituency be grateful to know as soon as possible where it is intended that that land will be.

Mr. Amery: My hon. Friend is on to a very valid point. The final acreages and densities have not yet been decided.

Housing (Temporary Sewerage Systems)

Mr. Allason: asked the Secretary of State for the Environment whether he will recommend the grant of planning permission for the construction of housing with temporary sewerage systems, to be linked at a later date with a permanent sewerage system, in order to avoid a bottleneck in the provision of land for housing.

The Minister for Local Government and Development (Mr. Graham Page): My right hon. Friend said in the debate on land and housing on 27th April that he has undertaken to grant loan sanction for sewerage schemes in advance of need in connection with land assembly schemes and I think it will generally be preferable to proceed in this way. But every planning application is dealt with on its merits.

Mr. Allason: Has my hon. Friend any estimate of the acreage of building land which is held up for lack of suitable sewerage? Does he not realise that it takes about five years to provide sewerage in the normal way?

Mr. Page: I have no estimate of that, but I think it best to proceed with the


loan sanction for permanent sewerage. The package deals offered for temporary sewerage are not as satisfactory as we should wish.

Stockholm Conference

Mr. Dalyell: asked the Secretary of State for the Environment if he will make a statement on his latest preparations for the Stockholm conference.

Mr. Peter Walker: The official report entitled "The Human Environment: the British View" was published on 8th May.
"Sinews for Survival", the first of the reports of the four working parties set up to assess public opinion was published on 9th May.
"Nuisance or Nemesis", the second report on pollution, is being published today. The others will follow shortly.

Mr. Dalyell: What are the Government doing to solve the vexed problem of East German representation?

Mr. Walker: This is a matter for my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs and a matter which the United Nations is taking up.

Mr. Crosland: Nevertheless it is a matter which should be of great concern to the right hon. Gentleman. I hope he is bringing to bear on his right hon. Friend all the pressure he can on this question. Is he aware that one of the four reports he mentioned, "Sinews for Survival", made a distinct obeisance to the currently fashionable anti-growth views? I very much hope that his speech at Stockholm will not reflect that, or he will rightly receive a rough reception from the developing countries.

Mr. Walker: I hope that Opposition right hon. and hon. Members will recognise that it is very much in the interests of the East European countries and Soviet Russia to attend the conference. It is not something they should decide not to attend because of a political point which is raised in other spheres. I recommend that the right hon. Gentleman thoroughly reads the report "Sinews for Strength", which I do not believe should be taken as an anti-growth document. It specifically states that it considers that the problems of growth in the future should be carefully

considered and that stopping growth is not the answer.

Railways (Train Telecommunications)

>12. Mr. Dempsey asked: the Secretary of State for the Environment if he will give a general direction to British Railways to install telecommunications in long-distance trains: and if he will make a statement.

Mr. Peyton: No, Sir.

Mr. Dempsey: Does not the right hon. Gentleman appreciate that increasing numbers of visitors, such as Americans and Canadians, are using the Glasgow trains to the South as a means of seeing the country? Would it not be sensible to have a system of inter-communication on these trains whereby points of interest, scenic areas and the principal cities could be explained to visitors? Would not this encourage more use of the trains?

Mr. Peyton: I would have thought that such matters could be explained to visitors without necessarily installing a telephone on every train. But the question of the installation of such telephones is entirely a matter for the Railways Board, and the provision of facilities necessary to back up those telephones is a matter for the Post Office.

Sport (Sponsorship)

Mr. Ashton: asked the Secretary of State for the Environment what consultations he has had with the Sports Council regarding sponsorship in sport, particularly by tobacco companies.

Mr. Eldon Griffiths: I am well aware of the Council's views.

Mr. Ashton: Can the hon. Gentleman explain why, in a year in which the Chancellor of the Exchequer is giving away £1,200 million, the British Olympic team has to rely on Rothman's asking for coupons to send the team to the Olympic Games? Is it not an anachronism that the Government should be printing health warnings on cigarette packets while encouraging the smoking of cigarettes to back up the British Olympic team?

Mr. Griffiths: I make it clear that the British Olympic team does not depend upon the charity of Rothman's or anyone else, but it would be entirely


wrong to prevent that part of the community which happens to smoke from contributing if it so wishes.

Sir G. Nabarro: Is it not enigmatic that the policy declared by the Government is to dissuade smoking, particularly of cigarettes, but that the Government should then cause sporting interests to rely on cigarette companies to subsidise their sport?

Mr. Griffiths: Perhaps I can repeat to my hon. Friend that they do not rely upon the tobacco companies. But if a sports organisation wishes of its own free will to benefit from the support of tobacco companies, that is in the first instance a matter for that organisation.

Mr. Pavitt: Will the hon. Gentleman consult the Secretary of State for Social Services about the interdepartmental report to which the hon. Gentleman's Department contributed with regard to this subject? It is common ground between us all that we should discourage young people from taking up smoking, and surely it is indefensible that Rothman's should mount a campaign of this kind which is in contravention of Government policy.

Mr. Griffiths: I am already in contact with my right hon. Friend the Secretary of State for Social Services, but the hon. Gentleman should be careful before he makes these very large statements. There is no doubt that the £1 million or so which goes into sport from tobacco advertising brings benefits, including health benefits, to those who otherwise would not take part in sport, and these benefits need to be offset against the undoubted dangers which, I accept, can arise to young people.

Channel Tunnel

Mr. Sheldon: asked the Secretary of State for the Environment if he will now make a further statement on the proposed Channel Tunnel.

Mr. Peyton: The French Minister and I are still in negotiation with the two Channel Tunnel companies about financing the next stage of work. We are also awaiting their report on the studies carried out over the past year.

Mr. Sheldon: When is the right hon. Gentleman likely to receive the report?

When will he update some of the factual information which is now up to 10 years out of date?

Mr. Peyton: I hope to receive the re-port as soon as possible. It should then be possible to update the information.

Mr. Costain: Is my right hon. Friend aware that there is great apprehension in Folkestone about where the tunnel is to come out and what effect it could have on amenities in the area? Will he give assurance that when the report is produced he will arrange a public meeting where the people of Folkestone and district can express their views?

Mr. Peyton: I will consider the suggestion. As soon as we have further information which may be of interest to my hon. Friend's constituents and others, I will certainly consider arrangements which would make possible an exchange of views, because I realise the anxieties to which he has referred.

Motor Vehicles (Noise Certification)

>15. Mr. Michael McNair-Wilson: asked the Secretary of State for the Environment whether he will seek powers to introduce an annual noise certification test for all vehicles two years old or more, to be issued concurrently with the Ministry of Transport certificate.

Mr. Eldon Griffiths: My right hon. Friend is now considering an extension of the annual test to cover noise following the recent report from the Noise Advisory Council.

Mr. McNair-Wilson: I am grateful to my hon. Friend for that reply. Is he aware that the present noise enforcement procedures are not catching those who are creating most noise from motor vehicles and that the existing Ministry of Transport testing, while adequate in many respects, is totally inadequate in catching those driving "bangers" and noisy motor-bikes?

Mr. Griffiths: There is undoubtedly room for improvement, but the police bring about 14,000 successful prosecutions each year in this respect and my right hon. Friend is considering whether the annual test can be extended to cover such things as silencers, defective of otherwise.

Mr. Tinn: I, too, welcome the hon. Gentleman's reply. What steps are being taken to ensure that when vehicles are designed, sometimes with deliberate appeal to younger drivers or riders—beach buggies, motor cycles and so on—they are not designed specifically to make a noise, quite regardless of the test?

Mr. Griffiths: My right hon. Friend has indicated his intention to impose further restrictions at the manufacturing stage of particularly noisy vehicles. I think the hon. Gentleman has made a good point and I will be glad to look into it further.

Improvement Grants

Mr. Garrett: asked the Secretary of State for the Environment whether he will seek powers to extend the 12-point check list for general improvement grants to householders to include the requirement that an adequate standard of roof insulation be installed before a grant is awarded.

Mr. Eyre: No, Sir. My right hon. Friend does not intend to make these grants more difficult to get by increasing the minimum qualifying standard.

Mr. Garrett: Would not the hon. Gentleman agree that in view of the requirements that dwellings must be properly ventilated, with adequate heating facilities and substantial freedom from dampness, it seems highly logical to include the one factor which enables these requirements to be made economically.

Mr. Eyre: The aim of the 12 points is to establish a minimum standard which a house must normally reach after improvement to qualify for grant. There is nothing to prevent a local authority giving a grant in the usual way for roof insulation if it is part of a scheme which it considers to be reasonable in relation to the property.

Clearance Programmes (Rehousing)

Miss Lestor: asked the Secretary of State for the Environment if he will list the provisions of the law which govern the responsibilities of a local authority to rehouse people displaced by clearance programmes.

Mr. Amery: Section 130 of the Town and Country Planning Act, 1971, imposes

on local authorities an obligation to ensure that suitable alternative accommodation is available for persons displaced from residential property cleared under planning powers. There is also a rehousing obligation in Section 42(3) of the Housing Act, 1957, covering displacements from slum clearance areas. Further obligations are contained in Section 22 of the New Towns Act, 1965, Section 32(3) of the Housing Act, 1969, and Section 144 of the Housing Act, 1957, covering acquisitions for new town purposes, acquisitions in general improvements areas and acquisitions by statutory undertakers, respectively.

Miss Lestor: I thank the right hon. Gentleman for that reply but can he clarify the position regarding the closure of hostels? Notwithstanding his letter to me of 4th April regarding the closure of Colnbrook hostel, where a large number of people working in my constituency live, and his assurance that those who have been living there for more than two years would be rehoused, the overwhelming majority are not being considered by the local council for rehousing.

Mr. Amery: I have already written to the hon. Lady about Colnbrook hostel and have drawn the attention of the four local authorities concerned to the need to provide single person accommodation in the area. I shall be glad to receive further representations from the hon. Lady and take further action.

Mr. Rowlands: Will the right hon. Gentleman look at another aspect of local authority responsibility for rehousing in the case of tenants who are often kept in deplorable conditions because their landlords are contesting clearance orders? Should not the position be changed so that the local authority could rehouse tenants immediately a clearance order is made, at the same time preventing other tenants from being taken into the property, rather than that it should have to keep these people—as is the case in my constituency—living in deplorable conditions while the landlord has a quarrel with the local authority over the clearance order?

Mr. Amery: It is open to the local authority to offer alternative housing while argument is going on, if there should be argument or an appeal. It would be wrong to take steps to close


houses without going through the proper procedure.

Housing (Planning Consents)

Mr. Evelyn King: asked the Secretary of State for the Environment if he can now estimate the area of land in England for which planning consent for the building of houses has been given but on which no building has commenced: and whether this figure has increased in the last 12 months.

Mr. David Mitchell: asked the Secretary of State for the Environment what estimate he has made of the number of dwellings for which planning consent has been given over the last two and five years respectively upon which building operations have not yet been commenced.

Mr. Graham Page: Complete information in the form requested is not available. Most of the authorities in the South-East outside greater London have worked together in analysing outstanding planning permissions in their areas and the housing figures; these suggest that permissions are currently outstanding for over 150,000 dwellings. I cannot break this total down to relate it to permissions given in any particular period, but the total has increased over the last two years.

Mr. King: I congratulate my hon. Friend on the enormous amount he is doing in this matter. Would not his task be greatly eased if he could induce local authorities to supply more reliable, more accurate and more up-to-date statistics? Is not this becoming more and more essential?

Mr. Page: At the end of 1970 we encouraged local planning authorities, especially in pressure areas, to take measures to monitor the balance between house building rates and the grant of planning permission. I have not felt it necessary yet to ask for returns but I take to heart what my hon. Friend has said.

Mr. Frank Allaun: Is not the withholding of land which has just been described largely due to the greed for realisation of enhanced prices? Would not the best way to stop this be by public ownership of the existing use value of the land—that is to say, at its agricultural value?

Mr. Page: The delay in developing when planning permission has been obtained may be for several reasons—for the purchase of other land to get a viable estate, for example.

Mr. Allaun: It may be speculation.

Mr. Page: It may be speculation in some cases. Local authorities have discretion to limit planning permission to a period of less than five years if there is good planning reason for doing so.

Smoke Control (Teesside)

Mr. Sutcliffe: asked the Secretary of State for the Environment, following his recent initiative, what report he has received from the Clean Air Council panel on the means whereby the Teesside County Borough Council domestic smoke control programme may be accelerated.

Mr. Eldon Griffiths: I expect the panel, which is to consider evidence from each of the nineteen so-called "black" local authorities of Tyne and Tees, as well as from other sources, to report to the Clean Air Council in October.

Mr. Sutcliffe: As this is a matter vitally affecting the health and well-being of over 500,000 people in and around Teesside, I congratulate my hon. Friend on this admirable sense of urgency. Does he foresee any obstacle at least to doubling the rate of progress of the programme which, as he knows, at the present rate will take until 1984 to eliminate domestic smoke from Teesside?

Mr. Griffiths: I know of no obstacle, administrative or physical, to a massive increase in the clean air programmes of these areas. My right hon. Friend has made it clear that the Government are anxious to see faster progress and I am glad to have my hon. Friend's support in urging the local authorities to get on with it.

Mr. Bob Brown: Is the hon. Gentleman aware that the former Labour Council of Newcastle-upon-Tyne had planned to have clean air by the end of 1970, that the present council is talking in terms of having clean air by the end of the decade and that the local health committee has requested extra staff to accelerate the programme in compliance with the Secretary of State's desires but


that the finance committee has thrown out its request?

Mr. Griffiths: My impression, having met the local authorities in the area, is that they are ready and willing to make progress in conformity with the advice my right hon. Friend has offered. I hope that the hon. Gentleman and all other hon. Members representing the area will join with the panel of the Clean Air Council in creating a cleaner North, which can be had.

Residential Densities (London)

Mr. Moyle: asked the Secretary of State for the Environment whether he is satisfied with the adequacy of the powers given to the Greater London Council under the London Government Act to increase the housing densities in outer London suburbs: and if he will make a statement.

Mr. Peter Walker: I am awaiting the report of the panel of inquiry into the Greater London Development Plan, which includes a statement of policy by the Greater London Council on residential densities.

Mr. Moyle: Would the right hon. Gentleman agree that in the inner London boroughs we have been waiting for the powers of persuasion to work on the outer London boroughs to increase their densities and help with the housing programmes but that they have had no real practical effect? Is not the inner London housing programme always handicapped by the fact that we have to pull down one house in order to build a new one? Figures recently published by the outer London boroughs of their housing programmes show that their response to pressures from the centre is totally inadequate, given the amount of open land they have in those parts of London.

Mr. Walker: Yes, but in statutory terms the system of the Greater London Plan is the only one available to the GLC. This has now come to its conclusion. I hope to act on it quickly and I will then immediately look at the problem.

Mr. Tebbit: Will my right hon. Friend note that in the London Borough of Waltham Forest, and in particular Chingford in the part I represent, although it

is an outer London borough densities are already at least as high as we need and there is not any more building land and it is part of an absurd political campaign on the part of Opposition Members consistently to tramp this one around?

Mr. Walker: Obviously there are variations from one borough to another, but there is a severe housing problem in London which has to be tackled by an overall London authority.

Mr. Crosland: Is the right hon. Gentleman aware that it is not a political campaign but a campaign to make more houses available to people who do not have a home? Of course I am not blaming this situation on the Secretary of State, but will he tell us what is happening to the various voluntary efforts that are being made by the so-called Action Committee and the London office which the London Boroughs Association is trying to set up and what degree of voluntary co-operation is forthcoming from the outer boroughs?

Mr. Walker: Progress is being made in a number of spheres and I am heartened by the work of the Action Committee. My hon. Friend the Minister of State for Northern Ireland, when he was Under-Secretary of State in my Department made considerable progress with the London boroughs in a number of initiatives. Likewise the release of railway and hospital land has made more land available for housing. The overall study of the Greater London Development Plan and work by the Action Committee will continue.

Pollution Offences (Fines)

Mr. Laurance Reed: asked the Secretary of State for the Environment if he will list the Acts of Parliament passed since June, 1970, which have increased the maximum fine for pollution offences, giving the average percentage increase.

Mr. Eldon Griffiths: The Oil in Navigable Waters Act, 1971, increased the maximum penalties on summary conviction for certain offences under this Act by a factor of 50. The Dangerous Litter Act, 1971, made provision in certain circumstances for the maximum fine to be increased from £10 to £100. The Deposit of Poisonous Waste Act, 1972, created new pollution offences subject to a maximum


penalty of unlimited fine on conviction on indictment.

Mr. Reed: When does my hon. Friend hope to complete the review of penalties for pollution offences, and will the increases in the size of fines be maintained?

Mr. Griffiths: I cannot anticipate the results of the review but I can tell my hon. Friend that offences under more than 20 Acts of Parliament are being considered and it is my right hon. Friend's intention that the fines on summary conviction shall be increased substantially.

Mr. Harper: Will the Minister consider fining the people who are responsible for pouring waste into the River Aire and causing the foam at Castleford? We are talking about maximum fines, but these people are not fined at all.

Mr. Griffiths: The hon. Gentleman has discussed this matter in the House and with me on a number of occasions. He knows as well as I do that the industries in question are doing their best, in conjunction with my Department, to arrive at a solution to that difficult problem.

Neasden Underpass

Mr. Pavitt: asked the Secretary of State for the Environment what is the latest estimate for the date on which the Neasden underpass will be opened.

Mr. Speed: In the spring of 1973.

Mr. Pavitt: In spite of the sins of the Department in so many quarters, I should like to convey the thanks of my constituents to the Minister's Department for the way in which it has expedited the silencing of a tremendous amount of noise caused by the building of the Neasden underpass. The underpass might be completed earlier if the new pile-driver, which is most successful, were provided with a full supply of piles to drive. Has the Minister yet received the costs of the public relations effort of the London Borough of Brent, so ably conducted on his behalf, and when may the borough expect to receive his cheque in settlement.

Mr. Speed: I am grateful to the hon. Gentleman for his earlier remarks but I would rather not comment on the last part of his supplementary question.

Motor Vehicles (Atmospheric Pollution)

Mr. Sydney Chapman: asked the Secretary of State for the Environment what study his Department is undertaking into checking the increased atmospheric pollution from vehicle exhausts in areas affected by new urban motorways, with particular reference to north-west Birmingham.

Mr. Eldon Griffiths: Under a contract from my Department's Transport and Road Research Laboratory and the City of Birmingham Public Health Department, the University of Aston is to undertake research into the levels of atmospheric pollutants emitted by motor vehicles at the Gravelly Hill motorway interchange from the time when it is opened by my right hon. Friend later this month.

Mr. Chapman: I am grateful to my hon. Friend for that reply. Does he realise that, when his right hon. Friend opens what has become known as the missing link on the M6 next week, I shall hold the dubious distinction of having a constituency which is almost totally encircled by urban motorways? There is genuine concern among my constituents about the level of atmospheric pollution. Will my hon. Friend make sure that the results of the survey are published and that there is open discussion of them?

Mr. Griffiths: Yes, Sir. I assure my hon. Friend that lead, carbon monoxide, hydrocarbons, oxides of nitrogen and, as necessary, total oxidants will be monitored, and I am sure that my right hon. Friend will wish discussions to take place afterwards.

Mr. Carter-Jones: Is the hon. Gentleman aware that these questions reveal considerable concern about the noise and pollution of vehicles? Will he speed up the studies, extend them beyond the Birmingham area to the whole of the country, consider particularly lorry drivers, other road users and the people who live in the areas and please give top priority to this?

Mr. Griffiths: Yes, Sir, my right hon. Friend and indeed other Departments of Government are very conscious of the


need to have effective monitoring and evaluation of all forms of environmental pollution.

Box Girder Bridges

Mr. Duffy: asked the Secretary of State for the Environment when he expects to publish the final version of new design rules for box girder bridges.

Mr. Speed: Interim design rules are being prepared by the Merrison Committee in accordance with its terms of reference and will be based on the appraisal rules which the committee has already drafted. My right hon. Friend expects to receive these interim rules before the end of July and will publish them shortly thereafter.

Mr. Duffy: What will be left of the weight/price/design expectations originally evoked by the box girder bridge, as well as its fundamental economics, by the time the Merrison Committee reports? What effect are the recently imposed safety conditions having upon the British bridge-building industry?

Mr. Speed: I draw the hon. Gentleman's attention to the interesting debate on this subject last Friday. The present indications are that the design rules may have very little effect on weight and design considerations and that there is a great future both for these bridges and for the British bridge-building industry. Mr. Speed: I draw the hon. Gentleman's attention to the interesting debate on this subject last Friday. The present indications are that the design rules may have very little effect on weight and design considerations and that there is a great future both for these bridges and for the British bridge-building industry.

County Durham Development Plan

Mr. David Watkins: asked the Secretary of State for the Environment when he will publish his decision on the public inquiry held in Durham in November, 1971, into the proposed amendment to the County Durham Development Plan, to remove certain settlements from "D" categorisation.

Mr. Armstrong: asked the Secretary of State for the Environment if he has reached any conclusions on the report of the public inquiry into reclassification of villages in County Durham held in November, 1971: and if he will make a statement.

Mr. Graham Page: My right hon. Friend expects to announce his decision shortly.

Mr. Watkins: I am grateful for the reply but is the Minister aware that it is now four years and two public inquiries since the application to recategorise the village of Hamsterley in my constituency? Since there is no known opposition to the proposal, why does it take so interminably long to make a decision?

Mr. Page: It was a complex inquiry—but not quite as long ago as the hon. Gentleman says. The inquiry took place in November, 1971, on the request of the county council which submitted an amendment to the development plan under which a dozen "D" villages were to be reclassified. The decision will be made shortly. The decision letter is already in draft.

Mr. Armstrong: Is the Minister aware that a progressive local authority in my constituency will not receive his reply with any gratitude? The authority feels that the matter is being delayed. Is the hon. Gentleman aware that necessary development, about which the Minister is always making public speeches, is almost ready to go ahead and is being delayed only by the Department dragging its feet?

Mr. Page: The hon. Gentleman will know that this has been a difficult subject. The idea of the "D" villages is to concentrate scarce resources in selected settlements which have the greatest potential as growth points and can be well equipped with modern living standards. He also perhaps knows that the hon. Member for Crosby is a little vulnerable over this and is in sympathy with him.

Mr. Tinn: Will the Minister allow me, as one who has no constituency responsibility but who happens to live in the area, to support both my hon. Friends, particularly my hon. Friend the Member for Durham, North-West (Mr. Armstrong), in drawing the hon. Gentleman's attention to the fact that some of these attractive villages, to which the local people have a strong attachment. have suffered adversely because of the long period of indecision, and to express the hope that a favourable decision will be quickly forthcoming?

Mr. Page: Yes, but I am sure it is right to try to concentrate the resources on those villages where the living conditions can be well improved.

Water Companies

Dr. Marshall: asked the Secretary of State for the Environment why, under his proposals for reorganisation of water authorities, private water companies are to be treated differently from public water undertakings.

Mr. Eldon Griffiths: The acquisition of the statutory water companies would mean rejecting over £200 million worth of investment by the private sector.

Dr. Marshall: In view of the statement in circular 92/71 that the Government are satisfied that the full integration of water services is now essential, what difference is there between the services provided by public water undertakings and those provided by private water companies?

Mr. Griffiths: The quality of the service varies between one undertaking. whether private or public, and another, but the crucial point is that there is no point in simply taking into public sector use some £200 million worth of investment when a perfectly good job is already being done.

Mr. Maddan: Does my hon. Friend agree that the private water companies' standard in respect of efficiency, research and development has been extremely high?

Mr. Griffiths: Yes, I agree that it has been extremely high, but I would not wish that to be taken to mean that the standard in public sector and local authority water provision has been worse.

Mr. Denis Howell: Is the hon. Gentleman aware that there is considerable resentment across the political parties in local government that there should be this disgraceful discrimination and that large municipal undertakings which have operated efficiently, economically and successfully are to have the supply of water removed from their control while small private companies, for the reason the Minister has given, are being left in private hands? Is this not just blind political partisanship?

Mr. Griffiths: No. The hon. Gentleman fails to understand what is involved. It would be inappropriate to put bodies

of elected members of local authorities in a position where they were merely agents of a regional water authority. The private companies will be agents. It would be wrong to put in local councils as agents.

House Prices

Mr. William Hamilton: asked the Secretary of State for the Environment what has been the average annual increase in the prices of houses built for sale in each of the last five years.

Mr. Amery: The average price of new dwellings in Great Britain mortgaged with building societies was 6 per cent. higher in 1967 than in 1966. On a similar basis prices were higher by 5 per cent. in 1968, 7 per cent. in 1969, 6 per cent. in 1970 and 13 per cent. in 1971.

Mr. Hamilton: Is the right hon. Gentleman aware that I was more or less aware of those figures before I tabled the Question? The Question was tabled simply to indicate the increasing impossibility, notwithstanding the nonsense the right hon. Gentleman uttered in answer to Question No. 8, of young married people getting a house. Does not the right hon. Gentleman know that even in some of the most unfashionable London suburbs the average rent of a co-ownership, non-profit-making house is £10 a week exclusive of maintenance and rates? I have figures to substantiate this. Very few young married couples can afford that amount of rent and maintenance.

Mr. Amery: I hope that the hon. Gentleman, whose interest in these matters I appreciate, will allow me to help him with his researches into these matters. It never was easy for a first-time purchaser to buy a house, but if anything it appears to be rather less difficult today. The average age of borrowers from building societies was a year or two less in 1971 than it was in 1967 and the number of borrowers under the age of 25 was 3 per cent. higher. This is a serious problem. It is not a party problem. The truth which we must recognise is that people have always wanted to own their own homes, but now far more people have the money to do so than had it before.

Sir Harmar Nicholls: Is my right hon. Friend aware that the Question and answer pinpoint the real problem facing the nation today? This is a matter that ought to be faced not merely by a departmental Minister, excellent though he is, but by the whole Government, the whole trade union movement and the whole nation. The inflation in house prices reflects everything that is happening in the country today in regard to soaring prices everywhere arising from wage increases.

Mr. Amery: I should be the first to join my right hon. and hon. Friends in all measures that can possibly be taken to resist wage inflation. The one satisfactory aspect of the present situation that I can see——

Mr. Hamilton: Nothing is satisfactory.

Mr. Amery: Yes, there is the steady growth of home ownership.

Mr. J. T. Price: Is it not becoming increasingly clear to the House and to millions of intelligent people throughout the country that the greatest single factor in the constant inflation which we all deplore is not wage inflation but the scandalous exploitation of land and property by greedy elements in society which are compelling the trade unions to follow and to recoup themselves for the scandalous rents and scandalous land prices that are becoming counters in speculation by conscienceless people who are running the big trusts and combines with which many hon. Gentlemen opposite are personally involved?

Mr. Amery: I repudiate as unworthy of the hon. Gentleman any suggestion that there is anyone in the Government with an interest in the inflation in house or land prices. I think that the hon. Gentleman has got the sequence wrong. It is the increased demand which has put up the price of houses and the increase in the price of houses which has put up the land values.

Mr. James Hill: Does my right hon. Friend agree that for many years local authorities have been hamstrung in putting in the services and sewerage systems so that land can be brought on to the market? Does my right hon. Friend agree that the Secretary of State's remarks

two or three weeks ago could be very helpful?

Mr. Amery: I agree entirely with my hon. Friend. There has been restriction in the past, but under the present wise Administration this is being brought to an end.

Mr. Freeson: Will the right hon. Gentleman consider at least some positive suggestions to contain this situation—for example, action at least to contain the return on investment in land purchases such as has been put to the Department and so far rejected, and also an undertaking to consider the need to increase massively the rate of local authority building at reasonable rents as the biggest single way in which inflation could be restrained in land and property in big city areas?

Mr. Amery: As the hon. Gentleman knows very well, under the present Administration, unlike under the previous one, there is no restriction of any kind on local authority programmes. I would be totally opposed to any restriction of credit for private building. I believe that the expansion of building in both the public and the private sectors will bring supply more closely into balance with demand and that this is the only sensible way of trying to stabilise prices.

GLASGOW EDUCATION AUTHORITY (DEFAULT ORDER)

Mr. Buchan: I beg to ask leave to move the Adjournment of the House under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the imposing of a default order on Glasgow Education Authority by the Secretary of State for Scotland and the need for its withdrawal so that Glasgow may proceed to introduce comprehensive education.
Yesterday a default order was placed upon Glasgow Education Authority. This morning I sought from the Secretary of State's Department the assurance that a statement would be made in the House so that this matter could be discussed. I was told that a statement was not to be made, and I therefore seek leave to move the Adjournment of the House.
The background stems, first, from the pledge which was given in the Conservative election manifesto—
We will maintain the existing rights of local education authorities to decide what is best for their area.
This was underlined by the Prime Minister's promise that
The most urgent reform of local government is to get the Government spanner out of the works. Under Labour there can never be real reform of Local Government for they will always seek to use their powers to bend the local authorities to their will.
Therefore, the clear indication was given that a local authority could proceed with the form of organisation it sought. This was borne out by Circular No. 760, which in terms allowed a local authority to use any form of organisation whether selective or comprehensive.
Glasgow proceeded to do just that. It decided to abolish fee paying in the previously fee-paying schools.

Mr. Speaker: Order. I know that the hon. Gentleman will be very careful not to make the speech that he would make were his application to be successful.

Mr. Buchan: I understand that, Mr. Speaker, but, as we have not had a statement, it is important that the background at any rate to this very serious matter should be given. I recognise your implicit ruling about argumentation.
A scheme was submitted by Glasgow to achieve just that. Instead of exercising his undoubted rights to question details, the Secretary of State sought a political confrontation on it. He ordered the Glasgow Corporation to proceed with its existing scheme of selectivity. This the corporation, in the light of Government assurances and in the light of the circular, refused to do. It has, instead, insisted on the right to proceed with an ending of the selective process in Glasgow's schools.
Now the Government have imposed a default order on the corporation.
The matter is specific because it is a named order—
The Education (Default of the Education Authority for the County of the City of Glasgow) Order, 1972.
The matter is specific also because the order is dated 16th May. It is specific also because it is signed by one
Gordon Campbell, One of Her Majesty's Principal Secretaries of State.

The matter is important because the order denies the democratically decided will of the people of Glasgow. It is important because it is denying the Government's pledges given in the circular. More serious, the matter is important because it is part of what I think is a new and dangerous development of the Government using the law as a means of conducting a form of political confrontation. We have seen it with school milk. We have seen it in terms of trade unionism. We have seen it in terms of housing. Now we are seeing it here. This misuse of the law brings the law into contempt and creates a dangerous precedent.
The matter is important, above all, because it denies the right, expressed in Statute and circular, of the authority of Glasgow to carry out the democratically expressed will of the Glasgow people. The matter is therefore specific and important.
Finally, it is urgent because the order has left the City of Glasgow only 12 days in which it is asked to deny the will of its own community. Therefore, the implication is serious.

Mr. Speaker: The hon. Member for Renfrew, West (Mr. Buchan) was courteous enough to give me notice that he would make this application. I have considered the application carefully, as I do all these applications. As a result of a Report of the Select Committee, of which I myself was a member, I am not allowed to state the reasons why I deal with these applications one way or another. I will merely say that I invite right hon. and hon. Members to look carefully at the Standing Order, where I think they will find many of the reasons why I rule as I do.
I regret that in this case I cannot agree to the hon. Gentleman's application.

Sir Harmar Nicholls: On a point of order, Mr. Speaker. I am sorry to return to a similar point which I had to put to you last week. The use of an application under Standing Order No. 9 in the way it has just been presented must be an abuse of the proceedings of the House—[Horn. MEMBERS: "No."]—the sense that there is a one-sided argument on the record which is not capable of being answered.
It will be within the recollection of all hon. Members that in the past applications under Standing Order No. 9 were put in an abbreviated form and the question was debated afterwards if the application was granted by the Chair. A one-sided point has now been put which is not capable of being answered. The presentation of a one-sided argument which, under the rules, is not capable of being answered must be an abuse of the procedures of the House. If hon. Members will not restrain themselves, the Standing Order should be so drawn that there can be an answer, just as an answer can be given under the Ten-Minute Rule Bill procedure.

Mr. Speaker: The hon. Gentleman has raised an important point. The Standing Order provides that an hon. Member may seek to move the Adjournment of the House for the purpose of discussing a specific and important matter that should have urgent consideration. The Chair must hear such an hon. Member. Whether there is an abuse in what happens and whether there should be a right of reply are not matters for me. Under the present Standing Order I am bound to hear an hon. Member who seeks to move the Adjournment of the House under the Standing Order.

Sir Robin Turton: On a point of order, Mr. Speaker. Can you help us? It is clear under the Standing Order that you must hear the application on grounds of urgency, but surely it is out of order for an hon. Member to seek to present arguments which should be presented in

the debate if the application is successful. Should not that rule be adhered to?

Mr. Speaker: I agree with the right hon. Gentleman, and I do my best to curtail the loquacity of hon. Members in this as in almost every sphere.

Mr. Ross: Bearing in mind that this affects a quarter of the population of Scotland, that it is urgent, that it is important, a matter——

Mr. Speaker: Order. We have already disposed of that matter.

BILL PRESENTED

PARLIAMENTARY AND OTHER PENSIONS

Mr. Robert Carr, supported by the Prime Minister, Mr. Secretary Maudling, Mr. Chancellor of the Exchequer, Mr. Secretary Whitelaw, Secretary Sir Keith Joseph, and Mr. Kenneth Baker, presented a Bill to make further provision with respect to the contributory pensions scheme for Members of the House of Commons, and to establish a similar scheme for the holders of certain Ministerial and other offices; to make further provision with respect to pensions and related benefits payable to or in respect of persons who have been Prime Minister, Speaker of the House of Commons or Lord Chancellor; to extend the applicatiton to Northern Ireland of certain enactments relating to pensions; and for purposes connected with those matters: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 141.]

INDUSTRIAL AND PROVIDENT SOCIETIES (CREDIT UNIONS)

3.41 p.m.

Mr. John Roper: I beg to move,
That leave be given to bring in a Bill to make provision for the registration, incorporation and administration of credit unions by applying with modifications and amendments the provisions of the Industrial and Provident Societies Acts 1965 to 1968 to them.
There is, unfortunately, at the moment a great deal of ignorance in this country about the nature and function of credit unions. This is a great pity, for although the commercial provision of credit in this country is well developed there are certain gaps which could be filled by the development of credit unions and there is a certain amount of exploitation of the consumer which could be reduced by the effective operation of credit unions.
Credit unions are mutual savings and loan societies, in a sense providing services comparable to those of building societies though for other forms of consumer expenditure. They are able to make loans to their members at relatively low rates of interest—for example, in the United States, where they are most developed—because they have a very low percentage of bad debts. This is because their members, averaging in the United States about 1,000 per credit union, are members of a credit union because of their common bond with the other members of that credit union. The common bond may be that they work in the same firm, belong to the same church, belong to the same trade union, live in the same district, or have some other form of common association which means that they will be well known to one another.
The mutual principle of credit unions has been particularly well developed in the United States where 22 million adults are members of credit unions having assets of some £7,000 million. There is a credit union operating in the White House for the benefit of the White House staff. These mutual non-profit-making credit co-operatives in the North American countries, both Canada and the United States, provide some 12 per cent. of consumer finance. In other Commonwealth countries, including Australian and Caribbean countries, credit unions are well developed, and in recent years there have been important developments

in the countries of Africa, Asia and Latin America.
In this country, although there has been some development, particularly among the immigrant community coming from the Caribbean, the credit union movement does not yet play a significant role in the provision of consumer finance. The credit unions which have been set up, and there are now some 40 of them, are hampered by the state of the law on consumer finance in general and on credit unions in particular.
This point was noted last year in the report of the Crowther Committee on Consumer Credit, which examined, in passing, the legal problems of credit unions in Great Britain. While referring to the more satisfactory legal framework existing in Northern Ireland, the report suggested that the law governing credit unions should be rationalised, and concluded that
there is a prima facie case for encouraging the credit union movement and for taking steps to make its existence, its aims and its methods widely known in the hope that it may take root here and more credit unions be formed in Britain.
The object of my Bill is to provide, within the general framework of the body of legislation dealing with mutual and cooperative forms of economic organisation, a structure for the further development of credit unions. It would draw upon the successfully operating Northern Ireland legislation in this field and would remove some of the legal difficulties at present affecting the operation of credit unions in Great Britain. Credit unions would then have a better chance to grow, and, while it is unlikely that they would quickly attain in this country the importance which they enjoy in North America, they could provide a useful addition to the facilities for consumer credit available in Britain. They would provide in most cases less expensive credit, and because of the mutual nature of the societies they would also be able to educate their members in the wise use of money and the management of their financial affairs.
The Government in due course may be bringing in general legislation covering the proposals in the Crowther Committee's Report on Consumer Credit. In the meantime I hope that the House will permit my Bill to start its passage in an attempt to encourage these mutual deposit and small loan societies to develop.

Question put and agreed to.

Bill ordered to be brought in by Mr. Roper, Mr. Edmund Dell, Mr. David Knox, Mr. Bert Oram, Mr. John Pardoe, Sir George Sinclair.

INDUSTRIAL AND PROVIDENT SOCIETIES (CREDIT UNIONS)

Bill to make provision for the registration, incorporation and administration of credit unions by applying with modifications and amendments the provisions of the Industrial and Provident Societies Acts 1965 to 1968 to them: And the same was read the First time; and ordered to be read the Second time on Friday, 16th June, and to be printed. [Bill 143.]

Orders of the Day — FINANCE BILL

(Clauses 1, 9, 12, 63, 64, 71, 73, 110, and 112 and Schedule 4)

Considered in Committee [Progress, 16th May].

[Sir ROBERT GRANT-FERRIS in the Chair]

Clause 71

RELIEF FOR PAYMENT OF INTEREST

3.47 p.m.

Mr. Joel Barnett: I beg to move Amendment No. 102, in page 46, line 42, after 'assessment', insert:
'from the asset or assets purchased with the sums borrowed'.

The Chairman: I understand that it will be for the convenience of the Committee if Amendment No. 67 is taken at the same time, in page 47, line I, leave out from 'rate' to end of line 3 and insert:
'which constitutes a going commercial market rate of interest, relief under this section will be permitted to that extent, but not exceeding a gross rate of 12 per centum per annum'.
I understand that the Committee does not demur from that.

Mr. Barnett: The Amendment seeks to limit the extent to which interest as defined in the Clause would be allowed, but I want to make it absolutely clear that we on this side of the Committee oppose the Clause as it stands. The Clause emphasises and goes to the very root of the difference between the two sides of the Committee. Indeed, we had this spelt out in the early hours of this morning by the Chief Secretary to the Treasury. It is a good time, at night, to have these differences spelt out.
We had some very interesting comments by the hon. Gentleman, and I think they are worth repeating, because they go to the heart of our difference. I have not got the printed OFFICIAL REPORT, but I have taken these extracts from the typewritten copy in the Library. The Chief Secretary said:
We are merely going some way to redress the distortion, which was too far in the other direction.


He went on:
On unearned income of £100,000 the effective rate of tax only shows a fall on that income of 0·8 per cent.
Only a fall of 0·8 per cent.! This really goes some way to indicate the difference between us, because we would like to see someone with unearned income of £100,000 having not a fall in the rate of tax but an increase, because any fall can only be at the expense of those at the other end of the scale.
The Chief Secretary went on to say—this may have been because of the time of the morning, because I can hardly believe that he really means this—
I believe we have struck a fair balance.
The Government feel that they have struck a fair balance in what they have done about investment income. I suppose the hon. Gentleman could be forgiven for what he said because he was replying to a suggestion by his hon. Friend the Member for Surrey, East (Mr. William Clark) who was not satisfied even with what he was asking for. He wanted more. He wanted investment income surcharge to be reduced to 5 per cent. The Chief Secretary told him that the effective rate under the unified tax does not exceed the effective rate now until a single man has an investment income of about £150,000 a year. In other words, for a bachelor the effective rate of tax does not change under the unified tax system until he receives £150,000 a year. That is the element of fairness which the Chief Secretary sees in this Budget.
That and the Clause in the way that it deals with loan interest go a long way to indicate that the Government are using their so-called reform of the tax system as a cloak for massive unfairness. We seek a very much fairer system than that which the Chief Secretary has in mind. We seek to remove the opportunities for blatant tax avoidance. One could use the Government's own case for VAT—a case which now has many holes in it—namely, that if there were a comprehensive tax it would be possible to keep the rate lower. That is the Government's case for VAT. One could make the same case for income tax. If there were a truly comprehensive tax which was not avoided as easily as the Government are seeking to have it avoided there could be a lower rate of tax, and that is what we seek. The

Clause is typical of Tory philosophy. It does not stop loopholes; it creates massive new ones, and those loopholes are not being created for the docker and the railwayman.
The only case for the Clause—and it was not made by the Chancellor either in his Budget speech or on Second Reading—is that if loan interest is disallowed one is taking income on a gross basis rather than on a net basis. There are two points against the purity of that argument. First, the loan interest under the Clause will not be available to every taxpayer. The vast majority of taxpayers either cannot or do not want to borrow—or if they can borrow so much they do not—in excess of £500 by way of loan and, therefore, there will be no benefit to them. The real benefit of the Clause will go to those who borrow sums very much in excess of £500.
The only other point to sustain the argument to which I have referred is that if it were allowed against an income-producing asset the allowance would be at the rate that was charged. In other words, if someone buys an asset the income from which is taxed at 60 per cent, it is fair to set the interest which he pays against that income-producing asset. But on the one hand that is not allowed for the majority of those who buy assets of small value not producing income; namely, those borrowing on hire-purchase. On the other hand, however, it is allowed for the small number of people who buy expensive assets which are not producing income but are, instead, producing capital growth which is either free of tax or subject to tax at the rate of only 30 per cent, as a capital gain, whilst the interest, which is as much as 90 per cent, at the top end, is allowed against investment income.
If the Chancellor is genuine about what he is seeking to do in the Clause he should accept the Amendment, because it seeks to limit the interest against the income of the asset purchased and at the same time disallow any surplus interest against other income. I hope the Minister of State will not say that the Amendment is technically not correct, or that it should have been worded differently. He knows the principle that we have in mind, and he knows the case that I am making, and if he were to accept the principle of the


Amendment it would be a simple matter for him to introduce an Amendment of his own on Report.
But we know that the Chancellor is not willing to restrict interest in this way, and that the result, in practice rather than in theory, will be not to remove an anomaly but to create a massive new one which will provide help for the few and refuse help for the many. This is not a case of allowing only the interest which is now disallowed. The Clause gives the green light to people to adjust their affairs to take advantage of the Chancellor's gift, and there will be considerable and important side effects.
There is one side effect relating to mortgages. Money is now flowing into the stock market and unit trusts. I understand that the amount of money flowing into building societies is beginning to diminish. That is my narrow experience, and it is apparently the experience of some financial commentators. That was the view taken by one commentator in the London Evening News the other day. I shall be interested to hear from the Minister whether there is any evidence of that kind of repercussion on building society receipts. If anyone doubts the grave repercussions and the extent of the free gift by the Chancellor he has only to look at the financial columns of the daily Press and particularly the Sunday Press to see just how people will take advantage of the Clause.
We are told by the Chancellor that the cost of this provision will be about £3 million this year and £7 million next year. In other words, that will be the figure when people have had time to organise in order to obtain greater benefits. I believe that the figure of £7 million is likely to turn out to be a massive understatement, and I shall be interested to learn from the Minister on what basis he makes his calculation that the cost will be only that sum next year. Is it, as I believe, that he has done this calculation in the deliberate knowledge that the extent of the benefit will be confused by the new unified tax scales and the relief to investment income so that it will not be possible truly to get an idea of the full extent of this gift? The reason why I believe that £7 million will prove to be a considerable underestimate is my knowledge of the great sophistica-

tion of the tax avoidance industry. It will not be slow to take advantage of the Clause.
The Chancellor recognised the scale of what he was doing because he took fright at the greediness of his hon. Friends, and what he has done is illogical. Despite his own arguments and philosophy he has restricted this to £2,000. How does he square that restriction with the Conservative philosophy of a free market and the maximisation of profits? Why has he limited this to £2,000? I believe that by doing that he has gone more than half way towards meeting the case that I am making. Is it, perhaps, that he is feeling just a small degree of shame at the extent to which he is allowing a few taxpayers to manipulate their tax affairs at the expense of the average taxpayer? That is what I believe he is really doing, and I suppose one could paraphrase the late Sir Winston Churchill and say "Never have so few been given so much at the expense of so many."
One could sum up by saying that there is no excuse for creating this bonanza. There is not even the usual claim for reducing the top level of taxation, because the Chancellor is reducing taxation for a few who can, and will, manipulate the tax system through the lucrative undergrowth along paths thoughtfully provided by the Chancellor. Such schemes are numerous. I do not propose to set all of them out before the Committee. but, as will be well known, they include life assurance, unit trusts, bonds and public school fees.
In that respect it is not only under this Clause that those who are paying public school fees will be helped, because we had a very interesting little debate at about 12.30 a.m. today. The Chief Secretary referred to public school fees. We were talking about the Amendment about VAT in education. The Chief Secretary said:
In so far as they are charities"—
that is, public schools—
they stand to benefit from the concessions … in estate duty and capital gains tax. This represents a significant measure of support and encouragement to the independent schools.
4.0 p.m.
We know what those Clauses are about. But there is more yet to come for


those paying public school fees, as hon. Members on the Government side will be aware, because they can manipulate this Clause to very considerable advantage. These schemes were going very well before 1969, when my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) put a stop to them. But they will certainly grow again.
I hope that we shall not have any humbug about its being good for growth, investment and the economy. The type of investment which the Clause encourages would not put the national interest first; it would put the quickest possible capital gain first. Judging from the debates we had yesterday, it would be interesting to know what sort of consultations the Chancellor had and what consideration he gave to the effect of this Clause on the economy. Unless someone could prove that these schemes proliferated in the past anything other than the growth of the wealth of a few I would not be prepared to listen.

Mr. Tam Dalyell: Precisely.

Mr. Barnett: The Clause has no merit. Therefore, I say now that my right hon. Friend, when he has the opportunity—which will not be long delayed—would once again disallow this type of interest and all the schemes that go with it. I am aware of the shuttlecock argument and the awful tangle that one can get into when successive Governments repeal the other's legislation. But that would be no excuse for leaving this appalling Clause on the Statute Book.
I recognise that the pledge has important consequences, and that is the intention. I hope that it will mean that the more blatant schemes will be killed in advance. If the Minister of State does not agree, it would be interesting to know whether the old borrow-almost-all type of policies will once again come back, or whether he wants to see them return. I am sure the Minister of State is aware of the type of scheme under which one paid one or two premiums on a very substantial policy and borrowed the remainder. So I hope the more blatant schemes will be killed in advance.
I do not apologise for giving that pledge. The Government should not object, because they claim that the Clause is only equitable and that they do not intend to

encourage such schemes. Thus, the pledge kills only the scheme designed to use the Clause in a way that the Government do not intend.
The best way to save all concerned a great deal of trouble would be to throw out the Clause now. I hope that that is what the Committee will do.

Mr. Hugh Dykes: I shall intervene only briefly on the subject of the Clause in general and the main Amendment. However, Sir Robert, as I understand that you have selected Amendment No. 67 in my name and the name of my hon. Friend the Member for Derbyshire, South-East (Mr. Rost) for discussion with the main Amendment, I shall speak about that also.
Regarding the general principle, what the hon. Member for Heywood and Royton (Mr. Joel Barnett) has said will be categorically and enthusiastically rejected by my hon. Friends as a partisan, sadly dogmatic and anachronistically doctrinaire view of what my right hon. Friend the Chancellor has done to rectify something which the previous Labour Administration did in 1969, I believe, as a party political piece of tax relief, adjustment or reduction. That was exclusively motivated by party political reasons and was based traditionally on the kind of long-standing argument which has always been manifested within the ranks of the Labour Party about the Conservative Party representing a particular narrow, sectarian interest, and so on.
I categorically reject that. It will be rejected by my hon. Friends, and possibly—though they may not say so loud and clear—by Opposition hon. Members.
There had been established over the years before 1969 a firmly accepted principle in this country that loans were available for abatement of the tax paid in respect of their interest and that that applied to the generality of loans and was, therefore, indivisible in its effect. However, I concede the argument of some hon. Members over previous years that, unfortunately, there had been abuses creeping into these arrangements, particularly in recent years. It was for the old arguments, perhaps, that these abuses were seized upon by the financial spokesmen of the present Opposition as a reason for abolishing a general abatement of


taxation which was to the immense benefit of large numbers of loan seekers and loan interest payers of a very modest size obtaining loans for a host of different purposes. The classic example was when the finance companies began to move away from hire-purchase-type contracts, where the asset was secured as far as they were concerned, to the credit sale-type of agreement, where no other security except that of the borrower himself existed but none the less interest relief could be obtained.
The expansion of the total hire-purchase debt outstanding over that period, when interest relief was a very attractive additional inducement for people to raise money on moderate net interest terms for purchasing a whole range of consumer durables, was to the immense benefit of the community as a whole. Therefore, to my mind it is the usual approach of the Opposition to say "Let us take our king-size sledgehammer and crack the tiny nut of abuse"—in total terms it was a relatively tiny nut—"in order to deprive out citizenry from the opportunity of obtaining loans on fixed relief terms which are to them very attractive and enable them to buy goods and finance services for themselves and their families, and to have access to things which might not be available otherwise."
Therefore, there will be widespread support among my hon. Friends and in the country as a whole—this has already been demonstrated—for the Chancellor's imaginative decision to bring back this relief for interest payments in general. None the less, we recognise that the abuse that crept into this system in recent years must be dealt with, and, therefore, there will be the special interdiction arrangements for gilt-edged securities and an upper ceiling of relief, which will contain that problem. But it is a very minor problem in relation to the total benefit.

Mr. Denzil Davies: The hon. Gentleman has spoken about a large number of people who will benefit from being able to deduct interest. As I read the Clause, it appears that the first amp;35 is not deductible, so many people will be unable to deduct their interest.

Mr. Dykes: My reaction to that is that I should like to see a reconsideration, not

necessarily this year but later, perhaps, of the fact that the first £35 of interest is not subject to relief. But it is fair to suggest that that can be taken separately from the general argument.
I return to the point, which I do not think the hon. Member for Heywood and Royton can deny, that, again speaking from memory, the total of hire-purchase transactions grew by several hundreds of millions of £s in the more recent period before the Labour Government's financial crisis and before 1969 when interest relief was abolished—from about £750 million to well over £1,000 million. Much of the growth was due to the attraction of interest relief, to the net interest arrangements and to the fact that many millions of people were able to benefit.
I wish to say a few words about my Amendment because it is much more technical in its aim and is symbolic, to some extent, in its objective. I should be most grateful if my hon. Friend the Minister of State would, in reply, spell out more clearly what the Government mean by "a commercial rate of interest". It could give rise to a great deal of doubt in many circles and in the public mind. I know that there are a number of precedents in previous tax Acts about a commercial rate of interest, but they have always tended to introduce confusion, and, therefore, in symbolically proposing that there should be an upper limit of 12 per cent. as a potential maximum market rate of interest I wish to impinge the light of the Government's attention on this matter, because it needs to be cleared up.
The Government should clearly say, even during periods of high interest rates—and they characterise the Labour Party's periods of administration rather than our own—that they would not envisage anything other than a certain maximum rate of interest to be in accord with the going market rate; or they should go the other way and say that interest relief will be available irrespective of the level of interest negotiated on a loan.
What does the phrase "commercial rate of interest" mean? To expert accountants—the hon. Member for Heywood and Royton is certainly one—it can mean something very different from what is means to people who have only a vague idea of the rates which obtain in the market for the purchase or financing of


goods and services. I would appreciate clarification on that more narrow point.

Mr. J. Grimond: I am one of those who have greatly admired the courage and ability of the Chancellor of the Exchequer in his fiscal reforms. He is doing a great deal to simplify the taxation system and has introduced many reforms which my party and I have advocated for many years. It is nice to have a Chancellor who surmounts difficulties and gets things done. However, I have always had doubts about allowing interest to be charged against tax. I have never seen the principle on which it rests. It is a concession, or, to use a more neutral word, a provision, which helps the rich, or at least the comparatively rich. It often helps the very rich. One must have a fairly substantial income before it is of any use.
It has been argued in the past that it was of great benefit to people who did not have large incomes. But, while it would be cut of order to argue the Clause in general, the first £35 of interest is excluded, and this would seem to do a great deal to rebut that argument. The Amendment would at least limit it to the asset or assets purchased with the sums borrowed. There is a great deal to be said for the Amendment, and I shall be interested to hear the Government's arguments on it.
I do not take the view of the hon. Member for Harrow, East (Mr. Dykes) that the opposition to the Clause from this side of the Committee is founded on a narrow, bitter, dogmatic view; far from it. If the hon. Gentleman makes inquiries among members of his party he will find that many people have been unhappy about this provision, and they sympathised, although they may not have expressed their sympathy, with the Labour Government when they abolished this concession.
4.15 p.m.
Apart from the fact that this appears to be a tax concession to those who are, to some extent, being well done by under the Bill and possibly need no more relief, it comes at a particularly unfortunate time. The Budget in general and the fiscal parts of it relating to tax are part of the general management of the economy. We all agree that the great danger facing this country is inflation.
If we are to counter inflation, there must be restraint. There are continual appeals for restraint. Restraint must mean the restraint of incomes right down the scale and, in particular, at the top of the scale. The Government are totally blind if they think that the people putting in wage claims are unaware of or do not mind the tax concessions in the Budget.
The rule that what is good for one person should be applied to all is a very old established principle in economics as well as in politics and morals. Yet again and again people at the top of the scale who are able more than to keep pace with inflation are assisted. People are given rights to subscribe for shares on special terms. We have had the cuts in surtax. There have been very large concessions in income and perquisites for very well-off people. On top of that, there is this further concession. I do not wish to exaggerate. I do not say that this concession will have a stunning effect on the economy. But it is typical of a certain attitude of mind which believes that we can draw a distinction between the railway driver who is not asking for a fortune and the man with substantial income who is to get a concession which will enable him to do a bit better still.
I ask the Government to think again about this matter. It is absolutely fatal to introduce this kind of concession at this moment, not because in itself it will make all that difference but because it is indicative of different standards being adopted for different types of people. If the Government want to deal with the economic state of the country, they must draw us all together and make us all aware that this is not the time for this type of concession. Not only is it indefensible in principle, but it should not be introduced at this time from the purely practical point of view of running the economy.

Mr. Nicholas Ridley: Like the right hon. Member for Orkney and Shetland (Mr. Grimond), I greatly admire the work of my right hon. Friend the Chancellor of the Exchequer in reforming taxation, and if I have not intervened in the debates on the Bill before it is because the best way in which I can express my admiration is by silence.
I think that the Amendment is rubbish. I do not see how we can ever separate


out groups of assets which are purchased with the money borrowed and say "This lot of money was used to purchase this lot of assets". That is not a practical way of going about solving the real difficulty which has been mentioned from the Opposition benches.

Mr. Joel Barnett: Is the hon. Gentleman aware that if the Clause is passed taxpayers will have to separate out interest in order to have it allowed if they have bought houses or other property?

Mr. Ridley: That was not my point. Perhaps the hon. Gentleman would allow me to develop my speech.
I understand the principle on which the Clause was put in the Bill, and I greatly admire the Government, who keep their pledges. The Conservative Party was pledged to introduce this concession. It would have been very difficult for the Government to avoid introducing it after the clear pledge which the late kin Macleod gave.
I will examine the underlying principle. If one borrows money and buys assets with it, it is right and equitable that the interest one pays on the borrowed money should be able to be set against the interest one receives on the assets one has purchased. At first sight that sounds a good principle, but I wonder whether the paying of interest on borrowed money is not like any other form of expenditure. It might be said that rents, food or national insurance contributions are equally essential items which have to be paid out of one's income. The case has to be made more strongly than this particular form of expenditure on interest on borrowed money is in some way an automatic deduction from one's gross income. That has been accepted for very nearly the 200 years that income tax has been with us.
On the whole, we have lived in times of stable currency. There would be little or no advantage in borrowing money to purchase assets because what one spends on the interest will be matched by what one receives from the assets. We now live in times of unpleasantly high inflation and it seems that a different set of circumstances apply. One can borrow money and in ten years when one comes to pay it back the assets purchased are greatly more valuable than the money to be paid

back. Therefore, although the principle is arguable, its application in times of inflation must be tempered by an understanding of the unfortunate effects it can have both in equity—the point made by the right hon. Member for Orkney and Shetland—and from the point of view of the contribution which it might make to inflation.
Lying behind the rise in land, share and house prices has been massive purchases of assets of these sorts—antiques and works of art as well—by people who have borrowed money for this purpose knowing that they will be able to sell at a profit at a future stage.
Although I should be happy with the Clause if my right hon. Friends had got the rate of inflation down to an almost non-existent level, I think we must temper our acceptance of the principle underlying it by the practical effects of allowing these transactions to take place in a period of rapid inflation. Not only does it contribute to inflation by pumping money into the system and enabling people to bid up the prices of assets, but at the same time it enables the better-off to protect themselves against inflation at the expense of the less well-off.
It is a little awkward that we have the figure of £35 in the Clause. It would be slightly less awkward if interest were allowable up to £35 rather than not allowable below £35. I understand the technical reasons why it is difficult to relieve interest on hire purchase and other such small transactions, but if we are to have this principle we should have it for all people however small their borrowings and whatever means they use to obtain those funds.
I hope that it will be possible to examine these arguments in relation to the present situation and the concern which has been expressed by all right hon. and hon. Members who have spoken about the £35 exemption.

Mr. A. E. P. Duffy: The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has put forward a convincing argument. He recognises that there are grounds for loan interest relief on the basis of security. At the same time he met the objection of the right hon. Member for Orkney and Shetland (Mr. Grimond) in that he saw that in its incidence it may be unjust, if not


arbitrary, on social grounds. Moreover, the hon. Gentleman recognised that some of the consequences may be objectionable in an inflationary situation. The hon. Gentleman also recognised the £35 bar to be indefensible. I can do not more than to demolish that argument. I hope the Committee will forgive me if I do so a little less briefly than the right hon. Gentleman and the hon. Gentleman who have just spoken.
It is important to be clear about the separate category in which loan interest falls. We are all aware that income tax falls essentially into three categories. We are all familiar with the first broad range of allowances which reflect the taxpayer's marital status and the number of dependants and the second group of allowances to which a taxpayer is entitled if he incurs expenses in the course of his trade or profession. We are not concerned with those now. The third category which many find confusing is the small, but select group of allowances which arise as a result of financial transactions, some of which include those transactions which have been mentioned this afternoon.
This confusing category breaks down into three recognisable parts: life assurance premiums, pension fund contributions and interest payments, all of which attract at least some form of income tax relief. It is the latter sub-category that attracts us. It is interest payments and the terms in which they receive relief which the Clause seeks to change and to which the Amendment is opposed.
For example, under the Clause the interest we pay on our bank overdrafts is to be deductible in calculating our tax bill, irrespective of whether the borrowed money is to be used to produce taxable income.
When this matter was last debated in the House in 1969, quite properly it was pointed out that if the lender of money has to pay tax on the interests he receives it is unfair that the borrower should forgo tax relief on the interest he pays. That is an argument we can all understand. To that extent, as far as the argument goes, there is no arbitrary discrimination. Yet there is discrimination, if of a subtle kind, rather like the comforts of the Savoy being denied to the poor, although ostensibly the door is open to the poor and the rich alike.
It is a well-established paradox that only the rich can borrow, primarily because the poor have insufficient credit for the purpose. Their substitute for borrowing—hire purchase, a form of legalised usury—is to carry no tax privileges. That is simply because the conventional hire-purchase contract does not, strictly speaking, and contrary to the impression I received from the hon. Member for Harrow, East (Mr. Dykes), involve a loan of money. There is, therefore, no form of interest element in the sum repaid so that no tax relief can be claimed.

Mr. Dykes: That was the point I was trying to make. The hon. Gentleman is correct about hire-purchase agreements not qualifying in that way. That is why the vast majority of so-called hire-purchase companies have moved on to the credit-sale type of agreement where a loan of money is granted to the borrower.

Mr. Duffy: But the conventional hire-purchase contract is still widespread. It is still the method to which so many poorer people have to resort. It is true that consumers are now arranging to pay for their goods under credit-sale agreements, but as yet there has been no great movement from Egypt into the Promised Land, much less a considerable movement of people towards the personal loan, which hon. Members on both sides understand even better, which qualifies for tax relief.
I will meet the hon. Gentleman and concede that an increasing number of poorer people are now able to raise personal loans. However, they will still not be able to benefit under the Clause. If a person borrows £466 at a flat rate of 71½ per cent. he will get no tax relief. That is because of this other remarkable feature of the Clause that there will be no tax relief on the first £35 of interest. If, for example, a personal loan is used to buy a washing machine or a fridge or to make an installment on a car, there will still be no income tax relief. At this interest rate one would have to borrow more than £466 to qualify for relief. The banks admit that their average personal loan is around £450, but I insist, contrary to what the hon. Member for Harrow, East says, that the poor still tend to go to the hire-purchase firms. The better-off have bank accounts and get their money at a cheaper rate from them. At 9 per cent. flat one has to


borrow only £390 in order to be paying interest of £35 a year and so qualify for tax relief.
4.30 p.m.
The Chancellor's action is of less benefit to the poorer borrower. On the other hand, the richer he is the greater the benefit. Anyone paying the top rate of surtax on earned income, now down to 75 per cent., who wants to borrow £1,000 at 7½ per cent. flat will pay, after tax relief, 3·95 per cent. If a person wants to buy a yacht, however, he would have to pay only 2·14 per cent. rate of interest. If he were living on unearned income—for example, investment income—and paying surtax of 88·75 per cent. he would do even better. The yacht would cost only 1·15 per cent. in interest, as The Guardian pointed out, though it did not use my terms.
Such a customer might get even better terms from the bank than would a poorer person. Rather than being foisted off with an expensive personal loan costing a true rate of interest of 15 per cent., for example, he would arrange an overdraft at 9 per cent. or 10 per cent. if he knows his way around, so that his borrowing would cost him less. This raises a point which we must not overlook, for we tend to confuse rates of interest. We tend to confuse nominal rates with true rates. For such a person borrowing £10,000 with the top, unearned, marginal tax rate, paying overdraft terms of say, 9 per cent. true rate, the net tax borrowing rate comes down to a true 1·33 per cent.
I have said enough to show why we on this side of the Committee are so sensitive to relief on loans, and it shows why the last Labour Government decided to end loan-interest tax relief in 1969, except for house purchase or improvement. I hope that when the Minister of State replies he will recall what I said when I touched lightly upon this on the Committee stage of the Finance Bill last year. He did not understand my reference to it then, although I can understand why when I look back at HANSARD, as I did this week. What I have said also explains why we wish to mitigate the effect of this Clause by means of this Amendment, restricting any relief to assets purchased.
What of the many other different means of providing consumer credit? With the

whole legal structure of consumer credit facilities in the melting pot as a result of the Crowther Committee's report, why do we have to revive this issue now? For this is a substantial issue,one that symbolises the difference between the two parties' fundamental attitudes towards personal wealth. That is why I am glad to speak in support of the Amendment.

Mr. David Waddington: My contribution will be very brief but I should like to hark back to one of the earlier remarks of the hon. Member for Heywood and Royton (Mr. Joel Barnett). He said that Clause 71 was a gift from the Chancellor to a relatively small group of people. I think it should be said quite plainly that all the Chancellor has done has been to restore partially what only a year ago was considered to be the elementary right of every taxpayer. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was right to point out that from the time income tax began until 1969 nobody questioned the principle that there should be relief of tax in respect of interest paid.
The hon. Member for Heywood and Royton went on to say that he feared that if Clause 71 became the law of the land all sorts of dubious schemes would proliferate, and he was against restoration of this relief for that very reason. This is an argument which is frequently advanced from the Opposition benches. I recognise that no tax scheme which approximates in the slightest degree towards justice could prevent all avoidance. But it would be terrible if people were to be deprived of legitimate relief because of the fear that some would abuse the system. That is like saying that no one should be able to charge against the profits of his business the costs of earning those profits because some may be tempted to put in false expense claims. That is a ridiculous attitude. Therefore I would say that in principle I am in favour of restoration of relief for tax on interest paid.
What concerns me and concerns a number of my hon. Friends is that part of Clause 71 which prevents any relief in respect of the first £35. I cannot reconcile that either with my ideas of justice or with what I understand to have been our pre-election pledge. We can take just pride on this side of the House in the fact that we have redeemed so many of the


pledges we made before the last election. It gives me great pleasure to go through our election manifesto and not only to strike off one by one those pledges which we made and have kept but to know what will come next, because it is listed in the manifesto. I know that it will not be long before the Government redeem the next pledge which I see on the list. But I cannot remember the late lain Macleod saying that there would be only partial restoration to the system which obtained before the 1969 Budget.
I know that my hon. Friend the Minister of State will say that it is in the interest of administrative convenience that the first £35 shall not be allowed, but I ask him to go away and think about the matter again and to see whether these administrative difficulties can be surmounted. Unfortunately, it is the experience of us all as politicians that on the first occasion the plea of administrative inconvenience is put forward. On the second occasion it is put forward with perhaps a little less enthusiasm. And as the rebellion on the Government back benches grows, the Front Bench spokesman eventually does go away and think about it properly for the first time. I urge my hon. Friend the Minister of State to go away and think about it again so that we can say to the country that we have redeemed our pre-election pledge in full.

Mr. Dalyell: Far be it from me to utter dire threats to the Government Front Bench, but the Minister of State might take heed of what his hon. and learned Friend the Member for Nelson and Colne (Mr. Waddington) said about the £35 limit. I hope that he will also clear up one mystery for us. Why did the Treasury alight on the sum of £35 and what are the administrative inconveniences? Perhaps in his reply he will give us a good reason, but it ought to be spelt out.
I see the hon. Member for Harrow, East (Mr. Dykes) leaving the Chamber. I noticed that he said that we were dealing with one tiny nut. But I seem to remember 24 hours ago that the Chancellor was rebuking my hon. Friends and myself for trying to suggest that we were talking about "tiny nuts", or at least small sums of money in relation to children's shoes. The Chancellor said that it involved £12 million which would pay the

running costs for six 500-bed hospitals for a year. I suppose that the hon. Gentleman's tiny nut is, to borrow the Chancellor's terminology, 3½ 500-bed hospitals per year, even on the Government's calculations.
The information I have from lawyers is that £7 million is probably an underestimate. That figure is not what is thought in the City, where friends of mine give a figure of £15 million to £20 million. I do not know who is right, but the Minister might spell out precisely what sums the Treasury expects in terms of the erosion of the revenue or otherwise.
I should be prepared to see the sense in what the Government are doing if it could be established that it was related to growth. Has loan interest any relation to growth? With a fair amount of good will, I do not see how the change can be claimed to be made in the interests of growth. If it is, the Minister must spell out why. Granted that the expectations of small businessmen will greatly influence their decisions for growth one way or another, it does not seem to me that this is the kind of measure to achieve it.
The right hon. Member for Orkney and Shetland (Mr. Grimond) was on a very valid point. Although it may be true that those who are negotiating for the National Union of Railwaymen and the Transport Salaried Staffs Association. let alone the majority of their members. do not pretend to know the ins and outs of the recondite measures we have been debating, or even the ins and outs of loan interest, we should be under no illusion that they know what the score is. Many of their leaders are very clued up on the provisions of the Bill. The Government should reflect on whether this is the kind of measure which looks to fairly objective people as a handout, as a directing of money towards the better-off and something biased against the worst-off. Is this the time when such a change should be made, during delicate negotiations? If the cry is for restraint and that inflation is the major enemy, this measure seems to make no kind of sense, especially if no convincing argument can be adduced that it is a growth measure.
Lawyers and friends tell me that experience shows that giving loan interest rebates lends itself to precisely the kind of avoidance, and a whole ethos of avoidance. that my hon. Friend the Member for


Heywood and Royton (Mr. Joel Barnett) spelled out. What sort of advice has the Treasury had on the possibilities of avoidance? This is not quite the same kind of question as I put yesterday on consulting outside bodies, but it is a perfectly serious question. How much discussion has there been on the possibilities of avoidance? Can the Government convince us that the allowance of relief on loan interest does not lend itself to avoidance in the way many people in the City have suggested?

[Mr. E. L. MALLALIEU in the Chair]

Mr. Cecil Parkinson: The hon. Member for West Lothian (Mr. Dalyell) and the right hon. Member for Orkney and Shetland (Mr. Grimond) both made the same point, that the Clause will benefit a section of the community and that we as a party have been gearing our efforts in that direction. The relief is available only to those who pay interest, and the right hon. Member for Orkney and Shetland said that what is good for one should be good for all. But the Government can point to a substantial record of benefits given to people in need which are not available to everyone. We introduced the family income supplement for the working poor, which is not a benefit available to the rich but is exclusively available to those who need it.
Opposition Members do not make the point that we have introduced a range of benefits available only to those in need. All the time they say that the Conservative Party is discriminatory, that we give reliefs to people who borrow money and that those who do not borrow do not receive any relief. Obviously those who have no investment income do not pay tax on their investment income. It is misleading to go on about the benefit which may become available to one section without mentioning the 2½ million people who will pay no tax as a result of the Government's measures. When we came to power a man earning £20 a week, with two children, paid £60 a year in taxes, but he now pays no tax and qualifies for substantial benefits.
There are two sides to every coin. Labour hon. Members harp on about the railwaymen being very aware in their

wage negotiations that there will be relief for loan interest. I hope that the railwaymen are also also aware that the same Government introduced substantial benefits for people who needed help, and that the railwaymen will stop trying to encourage inflationary wage settlements and wage demands by people whose needs are not always absolutely established. Labour hon. Members are misleading when they harp on as they do, and the right hon. Member for Orkney and Shetland also spoke in this vein.
4.45 p.m.
The hon. Member for Heywood and Royton (Mr. Joel Barnett) has not always felt about bank interest as he says he feels now. I have looked at the OFFICIAL REPORT of the Committee debates on the 1969 Finance Bill when he and his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) pointed out some of the anomalies that arose from not giving any relief for loan interest. They did not vote with their Government when an Amendment was moved to allow relief for people borrowing money to acquire shares in companies they worked for.

Mr. Joel Barnett: If the hon. Gentleman reads through those debates fully he will find that my hon. Friends and I generally supported the Clause then proposed by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), but there were one or two small Amendments which eventually my right hon. Friend conceded.

Mr. Parkinson: But only partially. The allowance to people who wanted to borrow money to buy shares in companies was fairly limited, and the relief given was very limited. That in its turn produced a great number of anomalies. The hon. Gentleman talked amusingly about anomalies when he spoke about VAT, but there were substantial anomalies in the relief he and his hon. Friends squeezed out of the then Chancellor. There are still very serious anomalies. I cannot see why it should be right to allow relief on money borrowed to buy shares in a private company or closed company but not to buy shares in ICI if one happens to work for it. It is a crazy situation when a large number of our labour force are excluded from relief on money borrowed to buy shares to


obtain a stake in their company. We said at the last General Election that the anomalies arising from abolition of the relief were very serious and that we would remedy them, bringing back relief.
I share a number of my hon. Friend's misgivings about the first £35. I accept that the Chancellor's argument that 1,000 additional civil servants would be involved in extending the relief is very valid, but I hope that later we shall be able to reconsider the matter and extend the relief to the first £35 of interest paid.
What we are doing is right. It is all very well to say that a number of very rich people will enter into schemes, but the hon. Gentleman and I know that if this provision is not available they will look for another. We are talking about a tiny group. If we made a law so watertight that it caught them, it would make life impossible for the rest of us. The Government can point to the fact that avoidance schemes are being made less valuable by their cutting the overall rate of tax for all. We are devaluing the currency of tax avoidance schemes based on exorbitant rates of tax.
The hon. Gentleman returned to a favourite theme of his, which is constantly repeated from the Opposition benches, that there is disincentive effect in high taxation. I do not believe him. I invite him to stand with me outside the gates of any factory in my constituency and talk about its being no disincentive. He would be laughed out of court, and he knows it. Being a practising accountant, he knows, as I do, that we spend a lot of time advising people who want to get on with the job of building up their businesses but have been forced or encouraged to divert too much of their energies towards working out how not to pay the excessive taxes imposed by him and his hon. Friends. We are creating a system in which people have incentives to get on with doing the job they are best at. We are reducing the value of the tax avoidance schemes, cutting into the value of the tax avoidance lawyer.
The overall effect of the Bill will not be what the hon. Gentleman says it will be. It will create a freer, more enterprising environment, and I welcome that.

Mr. Denzil Davies: I agree in one respect with the hon. Member for Enfield,

West (Mr. Parkinson). The Clause is the other side of the family income supplement coin; it is the family income supplement for rich families. The only difference is that it is more like a family capital supplement, because it provides them with capital at very low rates of interest.
The only conclusion we can come to about the exclusion of the first £35 is that the Clause has been drafted for purely party political motives. It has no relevance to the pursuit of a just and equitable tax system. It has no relevance to reducing unemployment, and it will do nothing to alleviate the serious economic situation. It is intended primarily as a reward for those few people, most of them based on the City, who just before the last election made a substantial investment in the Tory Party and have seen their investment treble and quadruple. The Clause is the second half of a package deal. The first half appeared last year, when the Chancellor abolished the short-term capital gains tax. This year he is removing the discrimination, as the Government call it, against interest payments, thereby enabling the rich speculator to convert his income into capital by using borrowed money subsidised by the general taxpayer.
The Government cannot make a case in logic or justice for making interest payments deductible. One Conservative Member tried to argue that there was some kind of hallowed principle enshrined in the income tax legislation that interest payments should be deductible. A better case could be made out for allowing other expenditure, such as rent, rates and the cost of food. There is no such principle. The deduction for interest payments crept into the original income tax legislation mainly for the purpose of assessment machinery. The reasons have now disappeared.
I should like to quote briefly from a judgment by Viscount Radcliffe on this matter in the House of Lords, in the case of the Commissioners of Inland Revenue v. Frere. He said:
…it is irrelevant to the determination of a person's taxable income that some part of it has been expended by him on what would normally be regarded as his own income account, in paying rent, wages, mortgage interest, rates, insurance, for example, or that the payments that he makes for such purposes will themselves constitute or contribute


to assessable income in the recipient's hands.…The mere fact, then, that part of a taxpayer's income has been used to pay interest on a loan during a year, even assuming that you visualise 'income' as a separate spending fund, would not in itself set up a reason for reducing the assessment of his taxable income. The payment of the interest, whether long or short, would be no more. for this purpose, than an 'application' of his income.
But if a case can be made out on grounds of social justice—and it can in certain circumstances—for some interest payments to be deductible, it cannot be made out in the way the Government have drafted this Clause. If considerations of justice and equity had arisen in their minds, they would have at least allowed the first—35 and disallowed the balance. In that way, they would at least have been spreading the benefit over a wider group of people, generally the less well off in substance than the minority who are actually to benefit.
Reference has been made to the amount of loan one can borrow from the bank on which the interest would be about £35. Possibly one could get a loan of £400, but not much more. The Government are, however, to exclude loans of £400 or so, although this might be the kind of amount that a young married couple, for example, might secure for the purchase of such things as kitchen appliances. The Government are excluding that kind of interest payment in favour of long interest payments on loans of more than £400 up to £20,000.
Thus, a rich man may borrow £20,000 from the bank, being able to set off the interest—say, £2,000 a year—against his other income. He will be able to buy a capital asset, which he may well sell within a few months at a profit which will be taxable on 30 per cent. The interest payments will be deductible against his other income. It does not matter that the capital asset produces no income. He will have made some real money, as they would say in the City, having converted his money into low rates of interest. It is not a case of avoidance or of abuse or of finding one's way round the Clause. The Clause does it all for one. This is a deliberately drafted device by a Tory Chancellor to enable the rich to convert income

into capital and to do so by money borrowed at very low rates of interest.
Another indication of the political motive behind the Clause is in subsection (1)(b). This deals with short-term interest, which is the interest on bank overdrafts and various other short-term loans meant to be repaid fairly quickly. This is right in the case of loans from banks and discount houses. It is fair enough to allow deductibility of interest in such cases. But tucked away in the middle of subsection (1)(b) there is a reference to stockbrokers' loans. It stipulates that the interest paid in respect of loans from stockbrokers will qualify for this relief. I do not know how stockbrokers get into this. Banks and discount houses are in the business of lending money, but stockbrokers are not. They may lend money but they are not in the business of lending money; they are in the business of buying and selling shares. Solicitors and department stores, for example, also lend money, so why do stockbrokers alone creep in? I suggest that this is a very nice reward for the City.
What could be more convenient if one sees the opportunity to make a gain on a new issue, for instance? A man goes to the stockbroker saying that he has no money to buy the shares. He borrows the money from the stockbroker. The stockbroker buys the shares for him. They are sold again within six months or so and there is a profit on 30 per cent. The stockbroker gets his quick return and commission. The man pays a low interest and gets a taxable gain on 30 per cent. The Inland Revenue will actually assist him to do so. He will pay 30 per cent. for the amount in relation to trading gain. This is all neatly tied up for the City, following the abolition of short-term capital gains tax. Under short-term capital gains tax, such a situation could not have arisen because a sale within a year would have attracted surtax and income tax. This is all part of a package. The Government could not put it all through last year because of a guilty conscience, but they have done it in stages.

Mr. Peter Trew: Will the hon. Gentleman deal with the situation in which shares depreciate in value?

Mr. Davies: In times of roaring inflation, which the present Government have caused in the country, shares appreciate quickly in value—many of them at a rate of 8 or 10 per cent. That is the situation which obtains at present.
The Prime Minister, when worried by a guilty conscience, perhaps, took out Disraeli, dusted him down, and called for one nation. That is common practice with the Conservative Party in such circumstances. But how are the Government creating that mythical conception? If they really believe in one nation, they can make a start with this Clause. They can either withdraw it or accept the Amendment. Either way, they would be demonstrating their sincerity to the millions who support the conception of one nation. But they will not do it. They have no hope of securing the support of the unions or the working people when they introduce legislation of this kind. Not only do they have no hope of getting it—they do not deserve to get it.

5.0 p.m.

Captain Walter Elliot: The hon. Member for Llanelly (Mr. Denzil Davies) jibes at us for making speeches endeavouring to create one nation. But hon. Members opposite. including himself, are always making speeches designed to create two nations—but perhaps that is a little outside the Amendment.
I take a fairly simple approach to this matter. It is the balance of interest as between the taxpayer and the tax gatherer. I hope that I might take hon. Members opposite along with me on that point. It often seems to me that all the scales are weighted against the taxpayer, as I think they are in this case. After all, we all pay tax on our deposit accounts and surely we should then get relief on our overdrafts. That seems to me the opposite side of the coin. High and low alike pay tax on their overdrafts and I, like most others who have spoken, do not quite understand why the figure of £35 is in the Clause. As my hon. and learned Friend the Member for Nelson and Collie (Mr. Waddington) said, I do not recall any qualification of our pledge that relief on overdraft interest would not apply to £35 or below. I thought that we had given an unqualified pledge and I hope that in the end we shall be able to carry it out.
I presume that the line is drawn in some way to help business and those who have quite large loans, but, of course, for every person who borrows over, say, £1,000, there must be 10,000 people who have much lower overdrafts than that. It seems to me, therefore, that some sort of value judgment has been made here and that it may be at fault. I am afraid it bears all the hallmarks of a Treasury departmental value judgment and perhaps not one by my hon. Friend the Financial Secretary, who, I hope, will he able to give us some encouragement that this matter will be looked at again with a view to helping the many small people who, for very good reasons, sometimes want small overdrafts.

Mr. Peter Rees: The hon. Member for Heywood and Royton (Mr. Barnett) concentrated, as he so often does, on tax avoidance, and he was, of course, supported in a sharply partisan speech by the hon. Member for Llanelly (Mr. Denzil Davies). But we know that behind their partisanship they both conceal considerable expertise in these matters. Indeed, the hon. Member for Heywood and Roy-ton made our mouths water by hinting at the various schemes of tax avoidance that he might now indulge in, but left it to us to approach him professionally outside the Chamber.

Mr. Joel Barnett: No.

Mr. Rees: The hon. Gentleman's modest disclaimer will not put us off.
It is apt to remind the Committee, including the hon. Members for Heywood and Royton and Llanelly, that all the Government are attempting to do is to restore if not completely the position to what it was before 1969. This is not a new, novel concept introduced to buy off the supporters of the Tory Party. It is simply a measure of elementary justice putting back the position to what it was before it was tampered with in such an ill-judged manner by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins). I am sorry that the right hon. Gentleman has left the Chamber and is not contributing to our debate, because he could make a notable contribution.
It is interesting to look back on the debates in 1969 when the provision disallowing loan interest relief was first introduced. The right hon. Member for


Stechford and, more particularly, Lord Diamond, did not concentrate on tax avoidance on that occasion but on the need to restrain consumption—a point picked up today by the right hon. Member for Orkney and Shetland (Mr. Grimond). There was an interesting passage between my right hon. Friend the present Home Secretary and Lord Diamond, when my right hon. Friend put to Lord Diamond that when there was no longer any need to restrain consumption the provision disallowing interest relief might be repealed. Lord Diamond rather deftly changed the balance and said that there was another principle underlying the provision—that one should be allowed to deduct relief only in the nature of business expenses. The theme of the Labour Government then was that it was necessary to restrain consumption. Contrary to what the right hon. Member for Orkney and Shetland has said, there is no longer any need to restrain consumption. It may arise again in future but at the moment we are suffering cost-push inflation and not demand-push inflation. If one were to carry this through and be logical, there should not even be a limit of £35. I am a little unhappy about that limit, although I recognise the balance of administrative complications as opposed to the desirability of abolishing the limit.
I do not believe that the sums of money borrowed and whose interest will be affected by these provisions are borrowed primarily for consumption. It is not easy to prove this—nor is it easy to prove that the money will be borrowed for tax avoidance schemes. Such schemes sound easy when outlined rather cursorily in our debate but they bristle with practical difficulties. So we should not be overenthusiastic about adopting various suggestions made by the hon. Member for Llanelly, who was thrown a little off-balance by a timely intervention from my hon. Friend the Member for Dartford (Mr. Trew).
In my experience, the sums of money borrowed on the kind of scale which will produce interest of more than £35 a year are borrowed for the acquisition of productive assets and are not always for the purpose of speculation. It is easy to label a whole class of persons as specu1'itors and think that that concludes the

argument, but we are not over-concerned, at this particular point, with the motives of the person in borrowing, but more with the consequences. I have yet to be persuaded that those who are so glibly and loosely dismissed as speculators necessarily harm the economy. A reasonable case can be advanced for saying that they assist the market, helping to loosen it up.
As my hon. Friend the Member for Enfield, West (Mr. Parkinson) cogently pointed out, many people borrow not necessarily to speculate but to acquire an interest in their own firms. The Spartan simplicity of the conception which underlay the measure which the Labour Government introduced to disallow loan interest relief became rapidly eroded in Committee, when it was pointed out to the Government how many hard cases the provision would create. One of the hard cases for which they were compelled to make concessions was that of people who were going to buy a substantial interest in close companies. I see the hon. Member for Heywood and Royton nodding assent. If that kind of concession is to be made, why not make a concession for an employee of ICI, Courtaulds or Shell who wished to buy a stake in his company? Such a motive is equally meritorious. It is such a case that will be relieved beyond doubt by this Measure.
It would perhaps be churlish in the light of that to join issue with my hon. Friend the Financial Secretary at any point on the Clause. However, the Government have sought to distinguish in the Clause relief for annual interest paid on loans from banks, stockbrokers and discount houses. I am sure that the hon. Member for Llanelly, with his professional experience, knows that this Clause has a very long history indeed and that such relief goes back at least 50 years.
My question to my hon. Friend the Financial Secretary is: why cannot this relief be extended right across the board to annual interest and to short interest from whatever source? I acknowledge that this would be an innovation, but it would have the merit of simplicity and it would tidy the whole thing up administratively. If we say that for administrative reasons we must limit this relief to loans with interest exceeding £35 a year, why not admit that same administrative argument and concede the argument right across the board?


Subject to that one small point, which I hope that my hon. Friend the Financial Secretary will look at before Report, I support the Clause with enthusiasm and I reject with scorn the specious argument in the name of the hon. Member for Heywood and Royton.

The Minister of State, Treasury (Mr. John Nott): This has been an interesting and quiet debate. When I look at hon. Members opposite I cannot help recalling the very long and interesting debates we had on this subject in Standing Committee and on Report of the 1969 Finance Bill. 1 recall that the measures which were announced in 1969 by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) received to some extent in Standing Committee a muted welcome from one or two hon. Members. I am endeavouring to be fair, but I must say that the then Financial Secretary—the right hon. Member for Manchester, Cheetham (Mr. Harold Lever)—was absent during a fair proportion of those debates. To imply that there was complete unanimity of view about the 1969 measures of the then Labour Administration is probably putting it rather too firmly.
I remember also the reasons given at the time of the 1969 Budget by the then Chancellor—the right hon. Member for Stechford—for introducing this measure. He ended his remarks on this issue by saying this:
By attacking the problem of loans for personal expenditure at both ends, discouraging borrowers as well as lenders, I expect to secure a substantial reduction in consumer demand"—[OFFICIAL REPORT, 15th April, 1969: Vol. 781, c. 1041.]
This was one of the principal purposes of the right hon. Member for Stechford when he introduced the disallowance of interest. The wish to restrict consumer demand has not been very evident from the speeches and actions of the Opposition over the past few months.
I recognise the concern which has been expressed about inflation. I take it rather more seriously from the right hon. Member for Orkney and Shetland (Mr. Grimond) and from my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). However, the case for the measure in the Clause was never one surrounding the whole subject of demand and demand management. The Govern-

ment are pursuing expansionary policies and this measure does not conflict with those objectives. With unemployment at its present high level, to try to restrict consumer demand—the right hon. Gentleman indicated that he was concerned about this aspect of my right hon. Friend's measure—would be likely to cut back on the activity rate in the economy at present when we already have a very substantial surplus of capacity and it probably would not have any effect on the rate of inflation.
5.15 p.m.
The purpose underlying the Clause is quite different from either of the points that I have mentioned. It is to end the anomalies which were created by the 1969 legislation. I will quickly remind the Committee of some of the problems which arose from the measure introduced by the Labour Government at that time.

Mr. Dalyell: The hon. Gentleman used the word "expansion". Is this the proper moment to inquire about the effect on growth?

Mr. Nott: My right hon. Friend the Chancellor of the Exchequer discussed his policies for the expansion of the economy in his Budget statement. I have nothing to add to or detract from the comments my right hon. Friend then made.

Mr. Dalyell: Is this measure claimed to be a measure for growth?

Mr. Nott: I was saying that this measure was not related to the question of the management of demand in the economy. I am going on to give the principal reasons for introducing the Clause.
The concentration of reliefs for interest into several special areas, which is what happened in the 1969 legislation, led, as hon. Members who served on the Finance Bill Committee at that time know, to a whole host of anomalous and distorted situations. The following four concessions were granted in Committee by the then Labour Government—interest on loans to a working proprietor of a close company; interest on loans to acquire plant and machinery; interest on a loan to executors to pay estate duly and annual interest on loans contracted before 1969.
Nevertheless, although these concessions were made, they did not remove the principal anomaly, which is that a businessman can borrow to offset his borrowing, but the private individual cannot. In an intervention yesterday the Shadow Chancellor gave a very vivid description of the man who took his children to school in a Rolls-Royce. I cannot understand why it should be all right in the philosophy of the Labour Party for this rich man to take his children to school in a Rolls-Royce purchased on his business but that somehow there is something wrong with his taking his children to school in a Rolls-Royce when it is purchased by himself.

Mr. Joel Barnett: Does the Minister of State accept that the businessman or company director taking his child to school in his Rolls-Royce would be paying for that himself and not out of his business?

Mr. Nott: No. If this particular businessman was taxed under Schedule D, as he may well be, it would be perfectly possible for him to arrange for the Rolls-Royce to be bought by his business. Under the 1969 legislation this would have been allowable for tax.

Mr. Joel Barnett: Perhaps, but I see that the Chief Secretary is looking at the Minister of State. Perhaps the two Ministers should have discussions. The proportion of the capital cost and of the running costs for taking the child to school would certainly be disallowed and would be paid, not out of tax, but by the man. If the law has changed, I should be very interested to hear it.

Mr. Nott: The question of the running costs of the Rolls-Royce is an entirely different issue.

Mr. Joel Barnett: Is it?

Mr. Nott: Yes. I was referring to the purchase of the asset, and that is entirely different.
A very anomalous situation was thrown up for the Schedule D taxpayer carrying on a business following the 1969 legislation, in that he was able to draw as much as he wanted out of his business for his personal expenditure and then borrow the money to refinance the business, treating the interest as a business expense.

The Clause will remove this principal anomaly and a host of others and restore the position which succesive Governments recognised as being fair and proper right up to 1969.
Something has been said in these debates, principally by hon. Members opposite, about the benefits which the Clause will bring to the wealthy. We must get the basic facts straight. A person who is paying 15s. in the £ in tax will benefit more from most tax allowances in absolute terms than his compratriot who pays 5s. in the amp; in tax. This situation derives, not from the allowances, but from the high rates of tax.
I do not understand—I say this to the right hon. Member for Orkney and Shetland and about most of the comments made from the other side—why the Opposition should argue that rates of tax should rise progressively with incomes but that this principle should not apply conversely to tax relief. The argument is not logical.
The situation was recognised perfectly clearly by the Crowther Committee, which said on page 341 of its report:
It is, of course, clear that the discrimination, or apparent discrimination, between the first man and the second"—
this is the very high taxpayer and the low taxpayer—
arose not out of the relief attracted by the payment of interest, but out of the rates of tax to which their incomes were subject at the margin".
That is where the situation arises. It is not anything to do with the tax relief as such. It is only under a regressive system of taxation that tax reductions can yield more in absolute terms to the poor than to the rich.
Several hon. Members have spoken about the effects that the Clause will have in the country. I will outline some of the things that my right hon. Friend did in his Budget. Many people were taken out of the tax bracket who would otherwise have paid tax in 1972–73. The threshold was raised to £1,116. Ninety-six per cent. of the total amount of £1,200 million in a full year which was made available through the increase in the personal allowances went to those with incomes under £4,000 a year, and nearly 60 per cent. went to those with incomes under £2,000 a year.
I do not think it is right to say, looking at the Budget as a whole, that it can be considered as anything other than one of the fairest and least partisan budgets of recent years. This measure must be seen in that context.
I come now to the Amendments. The object of Amendment No. 67 is to limit interest relief in all cases to interest not exceeding a gross rate of 12 per cent. Its effect would be to replace the rule in the Bill disallowing relief in excess of a reasonable commercial rate with a rule disallowing interest in excess of a gross rate of 12 per cent.
I listened with care to the remarks made by my hon. Friend the Member for Harrow, East (Mr. Dykes) in propounding the Amendment. I still do not see any reason for disallowing interest as long as it is paid at a reasonable commercial rate, whether or not that rate exceeds 12 per cent. As my hon. Friend said, the expression "a reasonable commercial rate" is used in other tax Statutes. In this instance it makes a great deal of sense. If the sponsor of the Amendment advocates that ceiling as a measure of consumer protection, any such ceiling should apply to the rate of interest itself and not to the tax relief on the interest, which is, after all, what we are debating. As my hon. Friend will be aware, this would bring us into the realm of the Moneylenders Acts, and that is a matter for the Department of Trade and Industry.
The Crowther Committee considered this point and came to the conclusion that what was reasonable from the lender's point of view depended on the circumstances of the transaction and bore no necessary relationship to what was socially harmful or otherwise. It depends on the nature of the transaction. Clearly, the commercial rate in a hire purchase transaction with a bank overdraft and a secured mortgage will be different in every case, and it is not likely that the safeguard will be needed, but it needs to be there in case of unusual circumstances which we are unable to foresee.
I come now to the official Opposition Amendment No. 102. If we gave relief on interest paid only against the income for the tax year in question from the asset purchased with the sums borrowed, the effect would be to confine relief under the Clause to income-producing capital assets.

In theory there is attraction in the argument that interest should be allowable as an expense only against income which the taxpayer receives as a result of paying the interest, but the idea suggested in the Amendment is not practical for the reasons I shall give.
A taxpayer may be forced to borrow in order to retain income-producing assets which he would otherwise be forced to sell—that would not be covered by the Amendment—or, having bought such assets with borrowed money, he may sell them and buy other income-producing assets while the loan remains outstanding; or he may borrow to pay for the maintenance of the income-producing assets in order to maintain the income yield. The Amendment is far too restrictive and would throw up a great many anomalies.
The main objection to the idea underlying the Amendment is that, except in such cases as a building society mortgage taken out in connection with the acquisition of a house, there is no legal connection between the source of the money which is borrowed and the way in which the money is spent.
At the time of the 1969 Finance Bill this very Amendment was considered and rejected by the then Labour Government. In moving the Second Reading of the 1969 Finance Bill the then Chief Secretary to the Treasury, now Lord Diamond, said:
The second argument which is put forward is that where a loan has been used to buy income-producing assets the interest on that loan should be treated as a deduction for tax purposes.…It would mean that anybody who had some capital and borrowed money could claim the interest for tax purposes, whereas anybody who did not have capital would not be able to claim the interest."—[OFFICIAL REPORT, 6th May, 1969; Vol. 783, c. 296.]
The Amendment would benefit those who already have capital against those who wish to build it up. I therefore leave it to Lord Diamond—than whom no better source is available—to give for me the reason why we do not find the Opposition Amendment acceptable.
5.30 p.m.
I will briefly try to answer one or two smaller points made by the hon. Member for Heywood and Royton. He raised the question of insurance policies—"borrow-all" policies was the term he used. The


Measures in the 1968 Finance Act introduced by the Labour Government are still on the Statute Book. We did not feel there was any need to add to them or to take them away. In so far as Measures exist to prevent the sort of transactions about which the hon. Gentleman was concerned, we shall be relying on legislation put forward by his own Government, and I hope that will satisfy him.
The hon. Gentleman mentioned the £2,000 limit. We set the limit at £2,000 as a matter of political judgment. It might have been some other figure, but we felt that was a fair limit. The £7 million cost has been mentioned by several hon. Gentlemen. That is the cost. At the time of the 1969 Measure the cost was said to be much higher. I will come now to the £35 limit, which concerned several of my hon. Friends, and explain why we set the limit at this level. The cost is £7 million—and I give the hon. Member for Heywood and Royton that assurance——

Mr. Denzil Davies: In the Financial Statement the cost of £7 million is shown against income tax. There is no reference to the cost against surtax. Is it an additional figure for surtax or is the total figure £7 million?

Mr. Nott: I shall have to consult the Red Book and give the answer to that later.
In dealing with the £35 limit I can do no better than repeat the remarks made by my right hon. Friend the Chancellor in his Budget statement. He said, referring to the earlier remarks he had made about the Crowther Committee report:
I also made it clear that the burden on the Administration must be a major factor and that reallowance without restriction would require 1,000 extra trained staff.…For the reasons I explained last year, there cannot be relief for ordinary hire purchase transactions. That, of course, has always been the position.
.For administrative reasons at present, and to maintain equity as between different forms of credit, the first £35 of all interest paid will not qualify for tax relief except in the case of loans for house purchase."—[OFFICIAL RFPORT, 21st March, 1972; Vol. 833, c. 1370.]
I do not think I can add to that statement of my right hon. Friend.
The Measures conform to the request of the Crowther Committee Report, page 345, and leave the ordinary purchaser of goods on hire purchase in precisely the

same position as he is at present. I believe that the proposals are right in equity because they apply right across the board and nobody, as a result of the £35 limit, can be affected by more than £10. It is a significant amount of money but not a very large one.
I conclude by saying that the Clause will remove the anomalies created by the Labour Government's Measures of 1969 and restore the position recognised by all Governments up to that time. It places individuals back in the same position as private businesses and, much no doubt to the surprise of the Opposition, it meets yet another of the Conservative Party's pledges made at the last election. I commend the Clause to the Committee.

Mr. Joel Barnett: I had thought that in this debate we should have had presented to us the reason in principle why the Clause is included in the Bill. We have had some interesting arguments from hon. Gentlemen opposite. The hon. Member for Harrow, East (Mr. Dykes) told us that the Clause helped a large number of borrowers. The hon. and learned Member for Nelson and Colne (Mr. Waddington) told us that it was an elementary right. The hon. and learned Member for Dover (Mr. Peter Rees) told us that it was an elementary piece of justice. But no case has been made for allowing interest. The only case presented by the Minister was on the question of anomalies.
The hon. Member for Enfield. West (Mr. Parkinson) said that only a small amount of avoidance would arise and if the Government did not have this method of avoidance they would have other methods of avoidance. That is a guide to future Chancellors of the Exchequer. It is an interesting suggestion that one method of avoiding tax should not be removed because if it is the experts will only find another method. I suppose the answer is for the Chancellor to seek methods of tax avoidance to include in the Finance Bill to save the tax experts the trouble of looking for them.

Mr. Parkinson: What I said was—as the hon. Member for Heywood and Roy-ton (Mr. Joel Barnett) knows better than anyone—that if people are determined to avoid or evade taxes they will find a way of doing so and that there has not been.


and never will be, a watertight Finance Bill. I went on to say that to make a Finance Bill watertight would be to make life impossible. I was not asking for an easy way of avoiding tax. I do not think there will be much avoidance. I think the hon. Gentleman is grossly overstating the possibilities.

Mr. Barnett: The hon. Gentleman has repeated what he said before, and I do not think I did him an injustice. He was arguing that we should not be too bothered about this, because it is a complicated method of tax avoidance which was open only to a select few. I agree with him on that.
The Minister of State said that the purpose of the Clause was to remove anomalies. I accept that it does remove some anomalies and in that respect it is comparable to VAT. VAT removes the anomalies in purchase tax but, after what has been said in the last five days, I do not think either the Minister of State or the Financial Secretary would argue that there are no anomalies in VAT.
Although I accept that the Clause removes some anomalies, there are still some anomalies which remain in the matter of loan interest. There is a level of £35 below which interest is not allowed. An Amendment was tabled which went some way towards meeting the views of some hon. Gentlemen opposite in that it allowed interest only below £35 and not beyond it. I agree that it is a matter of political judgment where the limit should be set, but in setting the figure at £35 the Minister is creating new anomalies.
The Minister of State said that the £2,000 level was also a matter of political judgment, and I accept that. That round figure obviously has great attractions to the Chancellor since it applies to investment income as well. But that is working in a different way, although it is of considerable benefit to a similar group of people. By putting on a figure of £2,000 new anomalies will be created, but the biggest anomaly of all is that hire-purchase interest will not be allowed.

Mr. Nott: It is not now.

Mr. Barnett: It is not now, I agree, so there is the anomaly that hire-purchase interest is disallowed, whereas on money

borrowed from a bank to buy the same goods interest is allowed.
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) pointed out that interest in this sense is a sort of purchase, whether it is on hire purchase or on money borrowed from a bank. Once we start in this minefield there will obviously be a large number of anomalies, but this one is the biggest, and the Chancellor has done nothing about it. If that is the only purpose of the Clause the Minister of State has made no case for it.
The case against the Clause has been made very well by my hon. Friends the Members for Sheffield, Attercliffe (Mr. Duffy) and Llanelly (Mr. Denzil Davies). There were also some further very interesting comments by the hon. Member for Cirencester and Tewkesbury and also by the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond).
The hon. Member for Cirencester and Tewkesbury agreed with the Clause, with the idea behind it, though he did not give any reason why, but he said that it was not perhaps suitable now. I do not think I am doing him an injustice by saying that that was what he was arguing, that it was not really suitable now, because—I took down his words—it would contribute to inflation. This is what he said. He went on to say that it would help the better off. Those were the words he used. Of course, nobody can dispute that. That is inevitable about this Clause. Of course it will help the better off.
On the question of inflation and the sort of boosting of inflation inherent in this Clause, the Minister of State had nothing to say. It is a fact, as the hon. Gentleman said, that money at times of inflation—such as this Government are presiding over—is not too valuable: that what one needs to do is to buy assets. What that does is push up prices of those assets. We have seen it, and are seeing it, all the time. This Government are not only in their whole economic policy presiding over inflation but they are now giving it a further boost by this Clause.

Mr. Nott: It is true to say, is it not, that the 1969 legislation tended to concentrate the purchase of assets into land, in particular, because borrowing against


land was allowed? I do not know how the hon. Gentleman can make this point, when his own measures were responsible for doing this.

Mr. Barnett: The hon. Gentleman is now saying that, before, this allowance for interest was allowable against land and, therefore, was inflationary in that sense, but he is now trying to make it inflationary over a much wider field. He is not trying to solve the problem. What he is trying to do is to broaden it. So now we have a situation where, as the Chancellor says, people buy antiques, or stocks and shares. Anything anybody cares to think of people can buy. This is the hon. Gentleman's solution to the problem. It is a very interesting one, very interesting indeed.
I think it was the right hon. Member for Orkney and Shetland who pointed out that it is not surprising that railwaymen and dockers learn from this. They will not buy stocks and shares. They will not have the opportunity of using this Clause, but when the Chancellor of the Exchequer tells those groups of workers, and others, that when they submit wage claims they should exercise restraint—I think that that was the word used by somebody in the debate: the right hon. Member for Orkney and Shetland. I think—It might be a good idea if he were also to tell those people who are waiting for this Clause to be passed to use it.

Mr. Nott: I am sorry, but I must go back to the hon. Gentleman's answer to my original intervention. This Measure does not in itself increase the total amount of money in circulation. The hon. Gentleman said that it broadens the areas in which money can be invested. That is perfectly true. It broadens them beyond land, which is one of the things which he allowed, but this Measure does not increase the total amount of money in circulation.

Mr. Barnett: This is a very interesting argument, and I should like to pursue it for an odd moment, because what the hon. Gentleman is now saying is that we have the same amount of money in circulation but he is broadening it, as he himself has conceded; so what he is doing is taking the same amount of money and broadening the field in which it is

going to be used. This is the case he is making, and, of course, it is precisely what I am saying, that by doing this he gives a further boost to inflation in all those other fields. The Clause inevitably gives a boost to inflation, as his hon. Friend pointed out to him. This is the crazy situation created by this Clause.
This is not the intention, because the Clause, the hon. Gentleman said, was not intended to boost consumption. This is not the purpose, because, as his hon. and learned Friend the Member for Dover pointed out, the sort of people borrowing to take advantage of the Clause will not be using it for consumption purposes; but it makes possible capital gains, either tax free by buying in gilts and borrowing less than £2,000, or saving capital gains of 30 per cent. in purchasing antiques and so on. These are the ways in which the Clause will be used, and this is what the Minister intends.
5.45 p.m.
It was obvious that the Minister was arguing that, if we increase these allowances, clearly the top taxpayer benefits most. The Minister instanced taxpayers paying 75 per cent. rate of tax. Obviously, if we increase the allowances they will benefit most from that. That is perfectly true, so what this Chancellor decides to do is not just increase personal allowances in this respect for everybody but to give a small increase in allowances purely for a very small and select few paying 75 per cent. tax and higher. That was his argument. That was what he was saying.
He went on to boast about the increased allowance. What in fact he was doing was boasting about the rate of inflation he presides over. He would not have needed to have increased personal allowance to anything like the same degree if we had not had the rate of inflation which we have had in the last 18 months. He could have boasted about an even higher personal allowance if he had presided over an even higher inflation. What a strange argument he made.
The hon. Gentleman said our Amendment is restrictive. Of course it is. That is its intention. It is restrictive. It does at least have the principle, as he was prepared to concede, of allowing interest only against the income producing the asset.
The hon. Gentleman said there would be administrative problems if he accepted it. I accept that there are administrative problems in that. That is why I would prefer, rather than make this Amendment to the Clause, to throw out the Clause altogether, and that is what I

invite my right hon. and hon. Friends to do.

Question put, That the Amendment be made:—

The Committee divided: Ayes 181, Noes 197.

Division No. 186.]
AYES
[5.47 p.m.


Albu, Austen
Harper, Joseph
Oswald, Thomas


Allen, Scholefield
Harrison, Walter (Wakefield)
Padley, Walter


Archer, Peter (Rowley Regis)
Healey, Rt. Hn. Denis
Palmer, Arthur


Armstrong, Ernest
Horam, John
Pannell, Rt. Hn. Charles


Ashley, Jack
Houghton, Rt. Hn. Douglas
Pardoe, John


Aston, Joe
Hughes, Rt. Hn. Cledwyn (Anglesey)
Parry, Robert (Liverpool, Exchange)


Atkinson, Norman
Hughes, Mark (Durham)
Pavitt, Laurie


Barnett, Joel (Heywood and Royton)
Hughes, Robert (Aberdeen, N.)
Pentland, Norman


Baxter, William
Hunter, Adam
Perry, Ernest G.


Benn, Rt. Hn. Anthony Wedgwood
Janner, Greville
Prentice, Rt. Hn. Reg.


Bennett, James (Glasgow, Bridgeton)
Jay, Rt. Hn. Douglas
Prescott, John


Bishop, E. S.
Jenkins, Hugh (Putney)
Price, J. T. (Westhoughton)


Blenkinsop, Arthur
Jenkins, Rt. Hn. Roy (Stechford)
Rankin, John


Booth, Albert
John, Brynmor
Reed, D. (Sedgefield)


Broughton, Sir Alfred
Johnson, James (K'ston-on-Hull, W.)
Rees Peter (Dover)


Brown, Bob (N'c'tle-upon-Tyne,W.)
Johnston, Russell (Inverness)
Richard, Ivor


Brown, Hugh D. (G'gow, Provan)




Brown, Ronald (Shoreditch &amp; F'bury)
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Roberts, Albert (Normanton)


Buchan Norman
Jones, Gwynoro (Carmarthen)
Robertson, John (Paisley)


Buchanan, Richard (G'gow, Sp'burn)
Jones, T. Alec (Rhondda, W.)
Rodgers, William (Stockton-on-Tees)


Callaghan, Rt. Hn. James
Kaufman, Gerald
Roper, John


Campbell, I. (Dunbartonshire, W.)
Kelley, Richard
Ross, Rt. Hn. William (Kilmarnock)


Carter, Ray (Birmingh'm, Northfield)
Kinnock, Neil
Rowlands, Edward


Castle, Rt. Hn. Barbara
Lambie, David
Sandelson, Neville


Cronin, John
Lamond, James
Sheldon, Robert (Ashton-under-Lyne)


Crosland, Rt. Hn. Anthony
Lawson, George
Short, Mrs. Renee (W'hampton.N.E.)


Cunningham, G. (Islington, S.W.)
Lee, Rt. Hn. Frederick
Sillars, James


Dalyell, Tarn
Lestor, Miss Joan
Silverman, Julius


Davies, Denzil (Llanelly)
Lever, Rt. Kn. Harold
Skinner, Dennis


Davies, (for (Gower)
Lewis, Arthur (W. Ham, N.)
Smith, John (Lanarkshire, N.)


Davis, Terry (Bromsgrove)
Lewis, Ron (Carlisle)
Spearing, Nigel


Deakins, Eric
Lipton, Marcus
Spriggs, Leslie


Dempsey, James
Lomas, Kenneth
Stallard, A. W.


Doig, Peter
Loughlin, Charles
Steel, David


Douglas, Dick (Stirlingshire, E.)
Lyon, Alexander W. (York)
Stewart, Donald (Western Isles)


Duffy, A. E. P.
Lyons, Edward (Bradford, E.)
Stoddart, David (Swindon)


Dunnett, Jack
Mabon, Dr. J. Dickson
Strang, Gavin


Eadie, Alex
McBride, Neil
Summerskill, Hn. Dr. Shirley


Edelman, Maurice
McCartney, Hugh
Swain, Thomas


Edwards, Robert (Bilston)
McElhone, Frank
Thomson, Rt. Hn. G. (Dundee, E.)


Edwards, William (Merioneth)
Mackenzie, Gregor
Thorpe, Rt. Hn. Jeremy


Ellis, Tom
Mackie, John
Tinn, James


English, Michael
Mackintosh, John P.
Tuck, Raphael


Ewing, Harry
Maclennan, Robert
Urwin, T. W.


Faulds, Andrew
McMillan, Tom (Glasgow, C.)
Varley, Eric G.


Fletcher, Ted (Darlington)
Mallalieu, J. P. W. (Huddersfield, E.)
Wainwright, Edwin


Foley, Maurice
Marks, Kenneth
Walden, Brian (B'm'ham, All Saints)


Foot, Michael
Marsden, F.
Walker, Harold (Doncaster)


Ford, Ben
Marshall, Dr. Edmuund
Wallace, George


Freeson, Reginald
Mason, Rt. Kn. Roy
Walkins, David


Galpern, Sir Myer
Mayhew, Christopher
Weitzman, David


Garrett, W. E.
Meacher, Michael
White, James (Glasgow, Pollok)


Gilbert, Dr. John
Mellish, Ri. Hn. Robert
Whitlock, William


Ginsburg, David (Dewsbury)
Mendelson, John
Willey, Rt. Hn. Frederick


Golding, John
Mikardo, Ian
Williams, Mrs. Shirley (Hitchin)


Gourlay, Harry
Millan, Bruce
Wilson, Alexander (Hamilton)


Grant, George (Morpeth)
Morris, Alfred (Wythenshawe)
Wilson, Rt. Hn. Harold (Huyton)


Grant, John D. (Islington, E.)
Morris, Charles R. (Openshaw)
Woof, Robert


Grimond, Rt. Hn. J.
Moyle, Roland



Hamilton, James (Bothwell)
Murray, Ronald King
TELLERS FOR THE AYES:


Hamilton, William (Fife, W.)
O'Halloran, Michael
Mr. James Wellbeloved and


Hamling, William
Orme, Stanley
Mr. James A. Dunn.


Hannan, William (G'gow, Maryhill)






NOES


Adley, Robert
Balniel, Rt. Hn. Lord
Blaker, Peter


Allason. James (Hemel Hempstead)
Barber, Rt. Hn. Anthony
Boardman, Tom (Leicester, S.W.)


Amery, Rt. Hn. Julian
Beamish, Col. Sir Tufton
Body, Richard


Atkins, Humphrey
Bell, Ronald
Boscawen, Hn. Robert


Baker. W. H. K. (Banff)
Bennett, Dr. Reginald (Gosport)
Bossom, Sir Clive




Bowden, Andrew
Hordern, Peter
Osborn, John


Braine, Sir Bernard
Howe, Hn. Sir Geoffrey (Reigate)
Owen, Idris (Stockport, N.)


Brinton Sir Tatton
Howell, David (Guildford)
Page, Graham (Crosby)


Brocklebank-Fowler, Christopher
Howell, Ralph (Norfolk, N.)
Parkinson, Cecil


Brown, Sir Edward (Bath)
Hutchison, Michael Clark
Peyton, Rt. Kn. John


Bruce-Gardyne, J.
Iremonger, T. L.
Pike, Miss Mervyn


Buchanan-Smith, AlicMAngus,N&amp;M)
Jenkin, Patrick (Woodford)
Pink, R. Bonner


Bullus. Sir Eric
Jessel, Toby
Pounder, Rafton


Butler, Adam (Bosworth)
Johnson Smith, G. (E. Grinstead)
Powell, Rt. Hn. J. Enoch


Campbell, Rt.Hn.G.(Moray&amp;Nairn)
Jopling, Michael
Prior, Rt. Hn. J. M. L.


Chapman, Sydney
Kaberry, Sir Donald
Proudfoot, Wilfred


Churchill, W. S.
Kellett-Bowman, Mrs. Elaine
Pym, Rt. Hn. Francis


Clark, William (Surrey, E.)
Kilfedder, James
Rawlinson, Rt. Hn. Sir Peter


Clarke Kenneth (Rushcliffe)
King, Evelyn (Dorset, S.)
Reed, Laurance (Bolton, E.)


Clegg, Walter
King, Tom (Bridgwater)
Rees, Peter (Dover)


Cooke, Robert
Kinsey, J. R.
Ridley, Hn. Nicholas


Coombs, Derek
Kirk, Peter
Roberts, Wyn (Conway)


Cooper, A. E.
Knox, David
Rost, Peter


Corfield, Rt. Hn. Frederick
Lane, David
Royle, Anthony


Cormack, Patrick
Langford-Holt, Sir John
Russell, Sir Ronald


Costain, A. P.
Legge-Bourke, Sir Harry
St. John-Stevas, Norman


Crouch, David
Le Marchant, Spencer
Sharpies, Richard


Dalkeith, Earl ot
Longden, Sir Gilbert
Simeons, Charles


Davies, Rt. Hn. John (Knutsford)
Loveridge, John
Sinclair, Sir George


Deedes, Rt. Hn. W. F.
Luce, R. N.
Skeet, T. H. H.


Dixon, Piers
McCrindle, R. A.
Speed, Keith


Drayson, G. B.
McLaren, Martin
Spence, John


Dykes, Hugh
Maclean, Sir Fitzroy
Stainton, Keith


Edwards, Nicholas (Pembroke)
McMaster, Stanley
Stanbrook, Ivor


Elliot, Capt. Walter (Carshalton)
McNair-Wilson, Michael
Stoddart-Scott, Col. Sir M.


Emery, Peter
McNair-Wilson, Patrick (New Forest)
Stokes, John


Eyre, Reginald
Maddan, Martin
Stuttaford, Dr. Tom


Fell, Anthony
Madel, David
Sutcliffe, John


Fenner, Mrs. Peggy
Maginnis, John E.
TapSell Peter


Fisher, Nigel (Surbiton)
Marples, Rt. Hn. Ernest
Taylor, Sir Charles (Eastbourne)


Fletcher-Cooke, Charles
Marten, Neil
Taylor,Edward M.(G'gow,Cathcart)


Fookes, Miss Janet
Mather, Carol
Taylor, Frank (Moss Side)


Fortescue, Tim
Maude, Angus
Tebbit, Norman


Fox, Marcus
Maudling, Rt. Hn. Reginald
Temple, John M.


Gardner, Edward
Mawby, Ray
Thatcher, Rt. Hn. Mrs. Margaret


Gibson-Watt, David
Maxwell-Hyslop. R. J.
Traftord, Dr. Anthony


Gilmour, Sir John (File, E.)
Meyer, Sir Anthony
Trew Peter


Goodhart, Philip
Mills, Peter (Torrington)
Tugendhat, Christopher


Goodhew, Victor
Mills, Stratton (Belfast, N.)
Turton, Rt. Hn. Sir Robin


Gorst, John
Mitchell.Lt.-Col.C.(Aberdeenshire.W)
Waddington, David


Gower, Raymond
Moate, Roger
Walker, Rt. Hn. Peter (Worcester)


Grant, Anthony (Harrow, C.)
Molyneaux, James
Walker-Smith, Rt. Hn. Sir Derek


Gray, Hamish
Monks, Mrs. Connie
Warren, Kenneth


Green, Alan
Monro, Hector
White, Roger (Gravesend)


Griffiths, Eldon (Bury St. Edmunds)
Montgomery, Fergus
Wiggin, Jerry


Grylls, Michael
Morgan-Giles, Rear-Adm.
Wilkinson, John


Hall, John (Wycombe)
Morrison, Charles
Winterton, Nicholas


Harrison, Brian (Maldon)
Mudd, David
Wood, Rt. Hn. Richard


Hastings, Stephen
Nabarro, Sir Gerald
Woodhouse, Hn. Christopher


Hawkins, Paul
Neave, Airey
Woodnutt, Mark


Hayhoe, Barney
Nicholls, Sir Hermar
Worsley, Marcus


Heseltine, Michael
Noble, Rt. Hn. Michael
Wylie, Rt. Hn. N. R.


Higgins, Terence L.
Normanton, Tom
Younger, Kn. George


Hiley, Joseph
Nott, John



Hill, James, (Southampton. Test)
Onslow, Craniey
TELLERS FOR THE NOES:


Holland, Philip
Oppenheim. Mrs. Sally
Mr. Bernard Weatherill and


Holt, Miss Mary
Orr, Capt. L. P. S.
Mr. Oscar Murton

Question accordingly negatived.

Question put, That the Clause stand part of the Bill:—

Division No. 187.

The Committee divided: Ayes 201, Noes 183.

Division No. 187]
AYES
[5.57 p.m.


Adley, Robert
Body, Richard
Carr, Rt. Hn. Robert


Allason, James (Hemel Hempstead)
Boscawen, Hn. Robert
Chapman, Sydney


Amery, Rt. Kn. Julian
Bossom, Sir Clive
Churchill, W. S.


Astor, John
Bowden, Andrew
Clark, William (Surrey. E.)


Atkins, Humphrey
Braine, Sir Bernard
Clegg, Walter


Baker, W. H. K. (Banff)
Brinton, Sir Tatton
Cooke, Robert


Balniel, Rt. Hn. Lord
Brocklebank-Fowler, Christopher
Coombs, Derek


Barber, Rt. Hn. Anthony
Brown, Sir Edward (Bath)
Cooper, A. E.


Beamish, Col. Sir Tufton
Bruce-Gardyne, J.
Corfield, Rt. Hn. Frederick


Bell, Ronald
Buchanan-Smith, Alick(Angus,N&amp;M)
Cormack, Patrick


Bennett, Dr. Reginald (Gosport)
Bullus, Sir Eric
Costain, A. P.


Blaker, Peter
Butler, Adam (Bosworth)
Crouch, David


Boardman, Tom (Leicester, S.W.)
Campbell, Rt.Hn.G.(Moray&amp;Nairn)
Dalkeith, Earl of




Davies, Rt. Hn. John (Knutsford)
Kirk, Peter
Proudfoot, Wilfred


Deedes, Rt. Hn. W. F.
Knox, David
Pym, Rt. Hn. Francis


Dixon, Piers
Lane, David
Rawlinson, Rt. Hn. Sir Peter


Dray son, G. B.
Langtord-Holt, Sir John
Reed, Laurance (Bolton, E.)


Dykes, Hugh
Legge-Bourke, Sir Harry
Rees, Peter (Dover)


Edwards, Nicholas (Pembroke)
Le Merchant, Spencer
Ridley, Hn. Nicholas


Elliot, Capt. Walter (Carshalton)
Longden, Sir Gilbert
Roberts, Wyn (Conway)


Emery, Peter
Loveridge, John
Rost, Peter


Eyre, Reginald
Luce, R. N.
Royle, Anthony


Fell, Anthony
McCrindle, R. A.
Russell, Sir Ronald


Fenner, Mrs. Peggy
McLaren, Martin
St. John-Stevas, Norman


Fisher, Nigel (Surblton)
Maclean, Sir Fitzroy
Sharpies, Richard


Fletcher-Cooke, Charles
McMaster, Stanley
Simeons, Charles


Fookes, Miss Janet
McNair-Wilson, Michael
Sinclair, Sir George


Fortescue, Tim
McNair-Wilson, Patrick (NewForest)
Skeet, T. H. H.


Fox, Marcus
Maddan, Martin
Speed, Keith


Gardner, Edward
Madel, David
Spence, John


Gibson-Watt, David
Marples, Rt. Hn. Ernest
Stainton, Keith


Gilmour, Sir John (Fife, E.)
Marten, Neil
Stanbrook, Ivor


Goodhart, Philip
Mather, Carol
Stoddart-Scott, Col. Sir M.


Goodhew, Victor
Maude, Angus
Stokes, John


Gorst, John
Maudling, Rt. Hn. Reginald



Gower, Raymond
Mawby, Ray
Stuttaford, Dr. Tom


Grant Anthony (Harrow, C)
Maxwell-Hyslop, R. J.
Sutcliffe John


Gray, Hamish
Meyer, Sir Anthony
Tapsell, Peter


Green, Alan
Mills, Peter (Torrington)
Taylor, Sir Charles (Eastbourne)


Griffiths. Eldon (Bury St. Edmunds)
Mills, Stratton (Belfast, N.)
Taylor,Edward M.(G'gow,Cathcart)


Grylls, Michael
Mitchell.Lt.-Col.C.(Aberdeenshire, W)
Taylor, Frank (Moss Side)


Hall, John (Wycombe)
Moate, Roger
Tebbit, Norman


Hannam, John (Exeter)
Molyneaux, James
Temple, John M.


Harrison, Brian (Maldon)
Monks, Mrs. Connie
Thatcher, Rt. Hn. Mrs. Margaret


Hastings, Stephen
Monro, Hector
Trafford, Dr. Anthony


Hawkins, Paul
Montgomery, Fergus
Trew, Peter


Hayhoe, Barney
Morgan-Giles, Rear-Adm.
Tugendhat, Christopher


Heseltine, Michael
Morrison, Charles
Turton, Rt. Hn. Sir Robin


Higgins, Terence L.
Mudd, David
van Straubenzee, W. R.


Hiley, Joseph
Nabarro, Sir Gerald
Waddington, David


Hill, James (Southampton, Test)
Neave, Airey
Walker, Rt. Hn. Peter (Worcester)


Holland, Philip
Nicholls, Sir Harmar
Walker-Smith, Rt. Hn. Sir Derek


Holt, Miss Mary
Noble, Rt. Hn. Michael
Warren, Kenneth


Hordern, Peter
Normanton, Tom
Weatherill, Bernard


Howe, Hn. Sir Geoffrey (Reigate)
Nott, John
White, Roger (Gravesend)


Howell, David (Guildford)
Onslow, Cranley
Wiggin, Jerry


Howell, Ralph (Norfolk, N.)
Oppanheim, Mrs. Sally
Wilkinson, John


Hutchison, Michael Clark
Orr, Capt. L. P. S.
Winterton, Nicholas


Iremonger, T. L.
Osborn, John
Wood, Rt. Hn. Richard


Jenkin, Patrick (Woodford)
Owen, Idris (Stockport, N.)
Woodhouse, Hn. Christopher


Jessel, Toby
Page, Graham (Crosby)
Woodnutt, Mark


Johnson Smith, G. (E. Grinstead)
Parkinson, Cecil
Worsley, Marcus


Jopling, Michael
Peyton, Rt. Hn. John
Wylie, Rt. Hn. N. R.


Kaberry, Sir Donald
Pike, Miss Mervyn
Younger, Hn. George


Kellett-Bowman, Mrs. Elaine
Pink, R. Bonner



Kilfedder, James
Pounder, Rafton
TELLERS FOR THE AYES:


King, Evelyn (Dorset, S.)
Powell, Rt. Hn. J. Enoch
Mr. Oscar Murton and


King, Tom (Bridgwater)
Price, David (Eastleigh)
Mr. Kenneth Clarke.


Kinsey, J. R.
Prior, Rt. Hn. J. M. L.





NOES


Albu, Austen
Castle, Rt. Hn. Barbara
Ford, Ben


Allen, Scholefield
Cronin, John
Freeson, Reginald


Archer, Peter (Rowley Regis)
Crosland, Rt. Hn. Anthony
Galpern, Sir Myer


Armstrong, Ernest
Cunningham, G. (Islington, S.W.)
Garrett, W. E.


Ashley, Jack
Dalyell, Tam
Gilbert, Dr. John


Ashton, Joe
Davies, Denzil (Llanelly)
Ginsburg, David (Dewsbury)


Atkinson, Norman
Davies, Ifor (Gower)
Golding, John


Barnes, Michael
Davis, Terry (Bromsgrove)
Gourlay, Harry


Barnett, Joel (Heywood and Royton)
Deakins, Eric
Grant, George (Morpeth)


Baxter, William
Dempsey, James
Grant, John D. (Islington, E.)


Benn, Rt. Hn. Anthony Wedgwood
Doig, Peter
Grimond, Rt. Hn. J.


Bennett, James (Glasgow, Bridgeton)
Douglas, Dick (Stirlingshire, E.)
Hamilton, James (Bothwell)


Bishop, E. S.
Duffy, A. E. P.
Hamilton, William (Fife, W.)


Blenkinsop, Arthur
Dunnett, Jack
Hamling, William


Booth, Albert
Eadie, Alex
Hannan, William (G'gow, Maryhill)


Broughton, Sir Alfred
Edeiman, Maurice
Harper, Joseph


Brown, Bob (N'c'tle-upon-Tyne,W.)
Edwards, Robert (Bilston)
Harrison, Walter (Wakefield)


Brown, Hugh D. (G'gow, Provan)
Edwards, William (Merioneth)
Healey, Rt. Hn. Denis


Brown, Ronald (Shoreditch &amp; F'bury)
Ellis, Tom
Horam, John


Buchan, Norman
English, Michael
Houghton, Rt. Hn. Douglas


Buchanan, Richard (G'gow, Sp'burn)
Ewing, Harry
Hughes, Rt. Hn. Cledwyn (Anglesey)


Callaghan, Rt. Hn. James
Faulds, Andrew
Hughes, Mark (Durham)


Campbell, I. (Dunbartonshire, W.)
Fletcher, Ted (Darlington)
Hughes, Robert (Aberdeen, N.)


Carter, Ray (Birmingh'm, Northfield)
Foley, Maurice
Hunter, Adam


Carter-Jones, Lewis (Eccles)
Foot, Michael
Janner, Greville







Jay, Rt. Hn. Douglas
Mason, Rt. Hn. Roy
Sillars, James


Jenkins, Hugh (Putney)
Mayhew, Christopher
Silverman, Julius


Jenkins, Fit. Hn. Roy (Stechford)
Meacher, Michael
Skinner, Dennis


John, Brynmor
Mellish, Rt. Hn. Robert
Smith, John (Lanarkshire, N.)


Johnson, James (K'ston-on-Hull, W.)
Mendelson, John
Spearing, Nigel


Johnston, Russell (Inverness)
Mikardo, Ian
Spriggs, Leslie


Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Millan, Bruce
Stallard, A. W.


Jones, Gwynoro (Carmarthen)
Mitchell, R. C. (S'hampton, Itchen)
Steel, David


Jones, T. Alec (Rhondda, W.)
Morris, Alfred (Wythenshawe)
Stewart, Donald (Western Isles)


Kaufman, Gerald
Morris, Charles R. (Openshaw)
Stoddart, David (Swindon)


Kelley, Richard
Murray, Ronald King
Strang, Gavin


Kinnock, Neil
O'Halloran, Michael
Summerskill, Hn. Dr. Shirley


Lambie, David
Orme, Stanley
Swain, Thomas


Lamond, James
Oswald, Thomas
Thomson, Rt. Hn. G. (Dundee, E.)


Lawson, George
Padley, Walter
Thorpe, Rt. Hn. Jeremy


Lee, Rt. Hn. Frederick
Palmer, Arthur
Tinn, James


Lestor, Miss Joan
Pannell, Rt. Hn. Charles
Tuck, Raphael


Lever, Rt. Hn. Harold
Pardoe, John
Urwin T W


Lewis, Arthur (W. Ham, N.)
Parry, Robert (Liverpool, Exchange)
Varley, Eric G.


Lewis, Ron (Carlisle)
Pavitt, Laurie
Wainwright, Edwin


Lipton, Marcus
Pentland, Norman
Walden, Brian (B'm'ham, All Saints)


Lomas, Kenneth
Prentice, Rl. Hn. Reg.
Walker, Harold (Doncaster)


Loughlin, Charles
Prescott, John
Wallace, George


Lyon, Alexander W. (York)
Price, J. T. (Westhoughton)
Watkins, David


Lyons, Edward (Bradford, E.)
Rankin, John
Weitzman, David


Mabon, Dr. J. Dickson
Reed, D. (Sedgefield)
Wellbeloved, James


McBride, Neil
Rees, Merlyn (Leeds, S.)
White, James (Glasgow, Pollok)


McCartney, Hugh
Richard, Ivor
Whitlock, William


McElhone, Frank
Roberts, Albert (Normanton)
Willey, Rt. Hn. Frederick


Mackenzie, Gregor
Robertson, John (Paisley)
Williams, Mrs. Shirley (Hitchin)


Mackie, John
Rodgers, William (Stockton-on-Tees)
Wilson, Alexander (Hamilton)


Mackintosh, John P.
Roper, John
Wilson, Rt. Hn. Harold (Huyton)


Maclennan, Robert
Ross, Rt. Hn. William (Kilmarnock)
Woof, Robert


McMillan, Tom (Glasgow, C.)
Rowlands, Ted



Mallalieu, J. P. W. (Huddersfield.E.)
Sandelson, Neville
TELLERS FOR THE NOES:


Marks, Kenneth
Sheldon, Robert (Ashton-under-Lyne)
Mr. Ernest G. Perry and


Marsden, F.
Short. Mrs. Renée (W'hampton.N.E.)
Mr. James A Dunn.


Marshall, Dr. Edmund

Questsion accordingly agreed to.

Clause 71 ordered to stand part of the Bill.

[Mrs. JOYCE BUTLER in the Chair]

Clause 73

SHAREOPTIONS—MODIFICATIONS OF SECTION 186(2) OF TAXES ACT

The Chief Secretary to the Treasury (Mr. Patrick Jenkin): I beg to move, Amendment No. 83, in page 50, line 9, at end insert:
'reduced by the amount or value (or, if variable, the least amount or value) of the consideration for which the shares may be so acquired'.
I think that it would be for the convenience of the Committee if I were to speak about the Amendment briefly, to explain its purpose. Then the Committee, if it pleases, can accept it and move on to a wider debate on the Clause.
Section 186 of the Income and Corporation Taxes Act, 1970, is the Section which charges income tax on the exercise of a stock option. Subsection (2) of that Section contains a provision to

prevent the double taxation of the gain on the stock option. This exemption in subsection (2) of Section 186 has, I fear, been exploited by a tax avoidance fraternity—some of them in the entertainment world—and they have been using the provision preventing the double taxation in the circumstances of the Section either to delay the liability for tax for many years or even to avoid the liability altogether by making sure that when they exercise the option they are abroad.
On the face of it, the Clause is fairly narrow and is intended to prevent the avoidance by this device. It would reinstate a tax charge on the grant of the option if the option is one which need not be exercised within seven years. Subsection (2) of the Clause seeks to avoid what might otherwise be a very contentious argument, namely, what is the proper value to be attributed to the option at the date of its grant so that it should form the basis of the charge to tax. The Clause provides:
the value of a right shall be taken to be not less than the market value at the time the right is obtained of the shares which may be acquired by the exercise of the right or of shares for which shares so acquired may be exchanged.


It has been represented to us that this goes too far. It is based on the assumption that the right is conferred for a purely nominal or, indeed, a nil sum, and it leaves out of account the possibility that the grantee may have paid a sum, possibly a substantial sum, upon the grant of the option. The Amendment puts this right. Therefore, it is a relieving Amendment to make the anti-avoidance provisions in the Clause effective but at the same time fair. I hope that the Committee will feel disposed to accept it.

Amendment agreed to.

Question proposed, That the Clause, as amended, stand part of the Bill.

Dr. John Gilbert: We did not wish to detain the Committee by discussing the Amendment we have just passed. We are in accord with the general principles behind it. However, I should like to make a few general remarks about stock options and stock incentive schemes. We can pursue many of these matters in much greater detail in Committee upstairs, particularly the provisions of Schedule 12, which are not appropriate for detailed discussion in Committee of the whole House. However, I predict for the Chief Secretary a quite warm reception, principally from Members on his own side of the Committee, when we reach Schedule 12. I assure him that, in large measure, we shall seek to protect him from the type of assault which we expect.
It is right, at the beginning of this debate, to acknowledge that there are considerable safeguards in Schedule 12 relating to all sorts of matters, such as the time at which the option or incentive is exercised, the relationship of the total amount of option or incentive available to the salary of the beneficiary, and the percentage of the company's capital stock which can be issued in schemes of this sort. We accept that the permitted schemes under the Bill as drafted are not as nearly obnoxious as we had feared, although we may well seek to introduce further safeguards in Committee upstairs. It will not have escaped the Chief Secretary's attention that quite serious criticism in the financial Press has been directed to the fact that the Bill is far more restrictive than those commentators would have liked to see.
Why do we have schemes of this sort? There is no lack of quotable material on this subject. One which came first to my hand was in an article by Mr. Henry Spencer in The Director of June, 1970, which said:
One basis for incentive schemes"—
the same applies to option schemes; it is largely a technical difference between the two—
is the high marginal rate of tax on earned incomes; how can a board reward an executive who at—10,000 a year will be paying close to 75 per cent. marginal tax rate?
That is a problem which exercises certain boards of directors. It will not exercise the railway men or the dockers. This is a method of transferring tax-free money into the hands of the better-off sections of the community at the expense of the general revenue.
These schemes are necessary because the 1966 Act, arising out of a well-known case, Abbott v. Philbin, changed the whole basis for share options, the benefits from which had, until then, been tax free, so that they are now subject to income tax. These arrangements were circumvented as soon as they were introduced in the 1966 Act. The fact that the arrangements were necessary is hardly denied by anyone. An article by a Mr. Oliver Stanley in one of the Sunday newspapers only about a month ago, referring to the pre-1966 Act situation, said
The decision in Abbott v. Philbin meant that your company could grant an option to take up shares, requiring from you only a nominal sum for the privilege. If its share price rose, you exercised, bought and sold to make a certain tax-free profit. If the share price fell, you lost nothing.

Mr. Peter Rees: I am sure that the hon. Gentleman would not wish to mislead the Committee. He said that there was no tax charge. Under the decision in Abbott v. Philbin there is a tax charge on the grant of the option. It is important to make that point.

6.15 p.m.

Dr. Gilbert: I take the point, but it is not a significant element. As Mr. Stanley went on to say,
That was a situation capable of exploitation. After one or two delicious little scandals—in which the real losers were the shareholders rather than the Inland Revenue—Mr. James Callaghan


moved to block up the loopholes. He did not say "unsavoury little scandals"; he said "delicious little scandals".
However, as a result of the Act, we saw the end temporarily of share option schemes as they had been known until then and the emergence of share incentive schemes. The only basic difference is that under the share option scheme one has the right to acquire the share at a privileged price; under the incentive scheme one has to acquire the share, although there is nothing to stop one acquiring it, given certain safeguards. at a very considerable discount. As Mr. Stanley went on to point out, under the share incentive schemes
You bought shares outright, but payment of the allotment price was deferred by one means or another. The company left it outstanding on loan, or used the mechanism of the partly-paid up share. Either way, the 1966 law was totally defeated".
The proliferation of share incentive schemes over the last few years smacks of a serious laxity on the part of the Inland Revenue. There is, for all practical purposes, no element of risk in most schemes, and I could pray in aid, although I shall not do so unless challenged, innumerable quotations from the public prints in support of that view.
I revert for the last time to the article by the extraordinary Mr. Stanley. He said:
Now Mr. Barber has decided that the share option per se is not an evil, and that gains upon options should be subject to capital gains tax, not income tax. That is so obvious a conclusion as not to need discussion.
I have news for Mr. Stanley and for the Chanceller: it is not just discussion about share option schemes that we want; we intend to offer them strenuous opposition.
What are the reasons put forward for these schemes? One of the first is that they will attract and retain executives for the companies which give them. But we know from all the publicity coming out of the firms of consultants engaged in setting up these schemes for companies that they are becoming more widespread. About 750 to 800 schemes already exist, and I believe that they are growing at the rate of about two a week. Clearly the schemes are competitive one with another,

and the more firms get their own scheme within the framework of the safeguards of Schedule 12, the weaker is the argument that a scheme is needed to attract and retain executives. It would be much simpler, if everybody had schemes, to get rid of them all so that nobody had schemes and one would be in exactly the same position.

Mr. Christopher Tugendhat: Surely the hon. Gentleman will agree that business activities cross frontiers. One cannot simply talk in United Kingdom terms. One must also talk in terms of attracting executives to work for foreign companies and attracting foreign executives to work for British companies.

Dr. Gilbert: That is a marginal point. The hon. Gentleman makes a fair point but, if he will allow me to develop my argument, the existence of these share and incentive option schemes, much as they are boosted in the handouts of the firms engaged in producing them, are crucial to individuals' decisions as to which country they work in or for which company they work.
Further to that argument, it is put forward that these schemes have a useful function as an incentive to executives in the firm for which they are working. I pray in aid a document to which I shall refer in the course of my remarks and which I commend to the hon. Gentleman. It is the "Management Survey Report No. 6" by the British Institute of Management, entitled "Share incentive schemes for Executives". It is a candid document which appeared in October, 1971. It directs detailed attention to many of these arguments and deals with the proposition that these schemes are an incentive to keep executives. It said:
As the reward was tied to the share price, participants were asked whether they thought their individual efforts affected the price.
That is the price of the shares.
Generally they thought not, as individuals, but all the participants considered that as a group they certainly did. The effects of external factors, such as the state of the economy etc., were often mentioned as being important influences beyond their control, and protection against an adverse market price was therefore regarded as particularly necessary.


Where an executive has a personal performance target to meet, or has responsibility for all aspects of the business
—those are very restrictive conditions—
an executive does feel his individual performance counts. In this case a share incentive scheme is an additional incentive, but for most participants this is not the situation.
We have adequately dealt with the argument that these schemes are needed as an incentive. That was the reason put forward by the Chancellor in his Budget statement.
There are various refinements of this argument. One is that the schemes are needed to identify key men with a company, to give them a sense of being on a par with the owners of a company:
The Press has often used the term 'to see the business with an owner's eye', to describe this new attitude of the executive.
It is hoped that will be generated in executives benefiting from these schemes. The report continues:
Most of the executives interviewed, including those in performance-linked schemes, thought this phrase did not describe their attitude. The owner traditionally invests his capital and effort and gets a return on investment proportional to the success of his performance. The participant is not in this position. His position is that of minor shareholder without overall control.
Finally, the argument is put forward that we need these schemes to reward key men. Now we are getting closer to the heart of the situation. Mr. Thomas, in "Management Today" of December, 1970, wrote:
Their beauty is that they allow the managers to accumulate capital, otherwise very difficult for a salaried man".
From the company's viewpoint the great charm is that
they cost very little compared to vast salary increases.
In other words, the purpose of the schemes is to reward the high-salaried executive at the cost of the Revenue, rather than at the cost of the shareholders of the corporation that he is supposed to be serving. For remunerating executives it is difficult from the manager's viewpoint to find a better method. First, it provides the participant with capital and, secondly, it is an efficient system and costs the manager virtually nothing.
Even the proponents of these schemes admit that there are serious disadvantages. They are not profit-sharing schemes. Those who benefit from them can share
in speculative gains as well as earned gains. If a competitor were to go bankrupt through no result of the competitive forces brought to bear by the company in question, or through the loss of a defence contract, the shares in the competing company would go up. Those who were participants in share incentive schemes would benefit accordingly without making any effort on their part.
I am glad to see that the Chief Secretary has armed himself with the same document. I will give him page references as I go through them to make it easier for him to follow.

Mr. Patrick Jenkin: It is fair that I should warn the hon. Gentleman that there are parts of the document to which I shall refer.

Dr. Gilbert: I have read it through from one end to the other. I think I know the sections to which the hon. Gentleman will refer. Another serious difficulty of these schemes, as even the most candid supporters would admit, is that they are not available to a great many employees in local government and nationalised industries. Civil servants have to watch those fortunate enough to he beneficiaries of these schemes make large amounts of capital acquisitions without paying tax. My next quotation is from page 10. Most of the schemes are not related to the performance of the individual.
In only two cases out of 54 was individual performance a set requirement for participation.
We can immediately dispose of the idea that the point of these schemes is to make the executive work harder in the interests of his business and its shareholders. I draw the hon. Gentleman's attention to an interesting article touching on this point which appeared on 30th April in the Sunday Telegraph. The article was written by Patrick Hutber. The article is entitled,
The bad part of Mr. Barber's Budget".
The parts that Mr. Hutber identifies as the bad parts will not be the same parts as my hon. Friends would identify. However, it is interesting that, talking about the reasons why the Chancellor thought the introduction of these schemes was advisable, he said:
If you believe in a system of high performance and high rewards then there is everything to be said for giving key executives a


chance to share in the prosperity of the company provided that their reward is linked to the success of the company.
There is not a word about provided that their reward is linked to their own efforts or contributions to the success of the company, which is a different matter. The survey which I have just mentioned discloses that in hardly any cases is such a requirement part of the scheme.
Furthermore, these schemes are restricted in their application, certainly in this country, to a small minority of employees of companies which run the schemes.
The survey in the same paragraph states:
Unless an executive is in the top I per cent. of a company's hierarchy the chance of being eligible is very small, although it does increase for those working for a smaller company.
In other words, these schemes are restricted to a handful of people who are already top salary earners in their companies.
There are those who are honest enough to admit the divisive effect of schemes of this kind. I refer the Chief Secretary now to page 6 of that report. There will not be much left for him to quote by the time I am through, because I have a quotation from almost every page. The report goes on:
Several people…are worried about the effects of share incentive schemes: 'Can you imagine anything more calculated to get away from the team spirit than to have a few men at the top included in some moneymaking scheme when those lower down are excluded?'.
That remark was made by the well-known Marxian Socialist, Sir Halford Reddish, no less.
When we come to analyse these schemes in detail we see that they are extremely exclusive and prejudicial to company morale, at least so far as more intelligent management is concerned.
Abroad, the pattern is quite different. In the United States, for example, 49 per cent. of the schemes reach levels as far down as general foreman, supervisor and ordinary foreman. There is nothing of that kind in this country. Indeed, several company chairmen agree, as one said that these schemes.

should apply only to top management as 'ordinary people' should not risk their small amount of savings in shares".
How very kind and considerate of him to suggest that ordinary people should not risk their capital in such schemes. But, as the report states in the next sentence:
Whilst this may be sound advice in general, in many schemes the actual risk element is small.
Of course it is small. It is intended to be small. For all practical purposes it is a one-way option. It is the privileged few who are getting the joy ride while everyone else works away under PAYE to give them the benefits that they have earned or at least that they receive without any commensurate target performance to meet.
The injustice of the whole performance is seen in a quotation from Mr. W. Robinson in the Financial Times of 8th October, 1970, in which he said:
It is a fundamental fact that profits are earned by the whole of the employees (and not just a select few) using assets provided by the shareholders.
That is what creates the profitability of the company.
I come back to my earlier question: why do we have these schemes at all? No doubt we shall be told that they are by no means for large-scale tax avoidance by the lucky few; that they are not—perish the though—to save big companies paying more tax than they otherwise would have to pay; and that they are nothing to do with tax advantages.
To be fair, I will quote what I anticipate the Chief Secretary might want to quote from page 8 of the report:
These figures illustrate that tax avoidance is certainly not the main aim of the majority of these schemes, as only some participants derive a tax benefit.
It is those who derive a tax benefit who institute the schemes. What the British Institute of Management Survey of those paying surtax does not reveal is the percentage of stock options going to people who are getting the tax benefits. The wicked thought persists that these schemes are not unconnected with tax matters.
The funny thing is that when these incentives and options are taxed in the same way as the rest of us pay tax


on our incomes, they melt away like the driven snow. There are a few honest men around who are prepared to admit that this is what the schemes are all about. We see this in an article by Mr. John Chown, the taxation correspondent of the Financial Times, who, on 10th February, 1971, talking about the schemes, said:
Of course, there would be no point in simply paying the executive high dividends which would be fully taxed and the benefit of such a scheme can only be enjoyed if the deferred shares can eventually be sold in the market for a capital profit.
All these schemes——

Mr. Patrick Jenkin: Will the hon. Gentleman tell the Committee what Mr. Chown's advice was in the rest of that article?

Dr. Gilbert: By all means. At the end of that article Mr. Chown says:
An ingenious variant on the highly geared share approach is that adopted by Cunard.…The Revenue has agreed that these scrip issues
—I am sure we do not want all these details—
will not give rise to tax although there will, of course, be a capital gains tax liability when they are sold.
The element in the schemes which commends them to Mr. Chown is:
The revenue has agreed that these scrip issues will not give rise to tax".
Mr. Chown is one of our most eminent taxation correspondents.
All the articles on the subject relate to tax and rewarding the high tax executive by participating in share incentive schemes. At the moment share incentive schemes virtually exclude the possibility of executives making a loss even if share prices and profits go into decline.
We get to the point where we are even asked for sympathy for those who are imprisoned in what is called the "golden handcuff". It almost makes one cry. One thinks that they are invoking the Truck Acts to help them escape from schemes which insist that they be rewarded with shares in the companies for which they work.
If the £10,000 or £20,000-a-year man needs bigger and better perks, his company should pay for them, not the general taxpayer. The company will not. It wants the rest of us to give the com-

pany a free ride. It wants us to make a forced levy on ourselves for the sake of its profits and its executives' perks.
The affront lies not in that the managing director of Plessey or of British Leyland or whoever will be getting large pickings from income tax, because the amounts he gets bear no relation to the contribution he makes to his company's success, nor even that the tax benefits he enjoys are so large and are not enjoyed by the rest of us; it is that the man on the shop floor, on the assembly line, is subsidising him. The trade union movement, the Committee and the Chief Secretary know it. Therefore, I have no hesitation in asking my right hon. and hon. Friends to divide against the Clause.

Mr. Peter Hordern: I can agree with the hon. Member for Dudley (Dr. Gilbert) on at least one matter: namely, that many of the arguments of substance on stock option schemes can be addressed to Schedule 12 to which we shall come in our proceedings upstairs.
I was interested to know the attitude of the hon. Gentleman towards stock options and share incentive schemes. He seems to suffer from some confusion of thought. The Committee knows that the hon. Gentleman has considerable experience of American practice—in particular, American commercial practice. He mentioned that stock options were widespread in the United States, but he did not mention that 89 per cent. of companies in the United States adopt stock option schemes and that the stock options in some companies are given all the way down the chain to the foremen of the companies. I assume, therefore, that the hon. Gentleman approves of the stock options system as operated in the United Statese but not as it is proposed in the present Bill.

Dr. Gilbert: I do not approve of the principle of stock options, but, if we are to have a stock options scheme, I would far rather have one in which most employees could participate, not one for just the privileged few.

Mr. Hordern: I understand the hon. Gentleman's view, but, with respect, it does not seem a particularly good argument to draw attention to the American system of stock options, which is far more generous than anything proposed


in the Bill. When we discuss Schedule 12 in our later proceedings, it will be not to the generosity of the proposed provisions but to their tautness and narrowness that one will draw attention. However, we can refer to those matters later.
The hon. Gentleman seems to be under a misconception about the meaning of the term "stock option". He seems to believe—I am sure that this view is prevalent in his party—that stock options are a method of transferring funds to surtax payers. In fact, the grant of an option does not of itself mean that any benefit has been conferred upon the recipient. Any benefit which may accrue is due to a variety of factors, depending in part—this is the reason why such options are granted—upon the work of the executive to whom they are granted, upon the movement of stock market prices, and so on.
It is amazing that the Labour Party always imagines that stock market prices move constantly upwards. Having had a little experience on the Stock Exchange, I assure the hon. Gentleman that that is not always the direction in which they move. As I say, I do not believe that the hon. Gentleman fully appreciates the meaning of the term stock option, and I felt that his account of the course of the law during recent years demonstrated that to be so.

Dr. Gilbert: I am well aware that stock prices go down as well as up. Will the hon. Gentleman address himself to the many quotations which I took from specialists in this matter, which make quite clear that a characteristic of virtually all these schemes is that there is no element of risk on the down side to the beneficiary?

Mr. Hordern: I shall come to that, and I shall address myself to those points, although I have not the advantage of the article to which the hon. Gentleman referred.
The hon. Gentleman was right to refer to the case of Abbot v. Philbin, which established that any gain on the sale when a stock option was executed should be subject only to capital gains tax and not to income tax and surtax. He was right to point out that the last Labour Government reversed that judgment in the House in 1966.
As I understand his position, the hon. Gentleman then argues that share incentive schemes, which were allowed to continue after that date, ought not to be approved. That is a remarkable thing to say, since there was a Labour Government then in power, and every single share incentive scheme had to be separately allowed by the Inland Revenue, with, in effect, the direct permission of the Chancellor of the Exchequer at that time. I cannot, therefore, see the ground upon which the hon. Gentleman bases his extraordinary objections to share incentive schemes as a whole.
The Labour Party's position on this matter is difficult to understand. Last year, when we discussed stock options in the Standing Committee, my right hon. Friend the Member for Farnham (Mr. Maurice Macmillan), then Chief Secretary, said that the present system of share incentive schemes was unsatisfactory because of the administrative work entailed which required people in the Inland Revenue to make an assessment of each scheme as it came out, and that the large amount of time devoted to these matters, both in the Inland Revenue and in companies, should be avoided if possible. My right hon. Friend said that proposals would, therefore, be brought forward later, and it is those proposals which we see in the Bill.
6.45 p.m.
The interesting feature of that debate, however, was the response from the Opposition, in particular, from the hon. and learned Member for Lincoln (Mr. Taverne). The hon. and learned Gentleman did not object to share incentive schemes. He said:
On the other hand, it would have been oppressive to have repressed them—so that the line advocated by the Chief Secretary is one which I do not find unacceptable."—[OFFICIAL REPORT, Standing Committee H, 21st June, 1971; c 939.]
I do not know what is the Labour Party's position on these schemes. I find it difficult to know whether one should follow the hon. and learned Member for Lincoln or his hon. Friend the Member for Dudley. With respect, I know which one I would rather follow, but it rather bemuses people outside the House to know what the Opposition's attitude on these matters is from time to time. I


suppose that we must now take it that they are set against stock option schemes and share incentive schemes of every kind. However, I do not believe that they would have taken that attitude if they had been in Government. I think that they would have adopted a sensible line. In fact, they did adopt a sensible line because, in doing away with the old form of stock option scheme which was subject to capital gains tax, they replaced it by a variety of share incentive schemes which were very largely adopted, and they certainly had no objection to those schemes at that time.
The arguments in favour of stock option schemes remain as valid now as they were when those debates took place in 1966. Obviously, stock option schemes act as an incentive. By definition, they are not grants or rewards which may be of definable value. They are prospective benefits if, and only if, the course of the market should take the shares in which the recipients are interested upwards in price. It cannot be said that the grant of an option confers any particular benefits on its recipient.
The hon. Member for Dudley knows very well that these schemes are extensively adopted in the United States, where very few of the restrictions proposed in the Bill are suffered. It is a matter of consequence that we should pay more and more heed to the standard of rewards to executives in various countries. In France, a man with an income of £5,000 a year will receive net £4,367. In Italy, the net figure is £3,789. In the United States, it is £3,853. In the United Kingdom, the figure after tax is still the lowest of all. In the £10,000 range, of course, the difference is even more marked.
It cannot be said, therefore, that the conferring of stock options to provide incentives is something to which we need not pay regard, considering the ease with which executives may move from one similar industry to another or from one country to another.
For those reasons, I am glad to welcome the principle of the stock option schemes set out in the Bill, though I must tell my hon. Friend the Chief Secretary that I welcome only the principle and not at all the detail. However, those are matters to which we can return on Schedule 12.

Mr. John Cronin: I would agree with the hon. Member for Horsham (Mr. Hordern) in so far as I am strongly in favour of the maximum possible incentives being given to executives to do their work more efficiently, particularly in the export business. There is no escaping the fact that to a large extent the country rests on the shoulders of a relatively small group of determined men, the executives who sell our goods abroad and who also, by their technical innovations—I am referring to the engineers and scientists—improve our products so that they may compete better with other products abroad. I think they should be given every possible reward and both sides of the Committee would probably agree with that view. But I wonder whether stock options are the most satisfactory way of doing this. Come what may, stock options in the long term are a form of tax avoidance. They are creating a privileged class of persons who do not pay the same amount of tax as others who enjoy the same income.
There are so many anomalies in income tax that it is most undesirable to create more and to create this privileged class. One of the worst anomalies is the difference between people who pay tax under Schedule D and those who pay under Schedule E. One group is a very privileged class and the other has to pay income tax under very severe and onerous circumstances. I would have thought therefore that anything which increased the privileges and created a class which paid less tax than other people in the same income bracket should be discarded.
I do not think a case has been made out in favour of stock options. There are many ways of rewarding executives and the most obvious is to make sure they have a high salary if their work is good. I am a strong believer in Henry Ford's dictum that no salary is too high provided that it is earned. The proper way of rewarding a successful executive is to raise his salary. He then pays his income tax or surtax like everyone else and there can be no question of his having an unfair tax advantage.
There are many other incentives which could be given to successful executives. One of the most important relates to their status in the company. They could be given such things as company cars and


numerous luxuries that could make life more pleasant for them. But certainly the most important way of rewarding the successful executive is through his salary. On the other hand I wonder whether all these incentives are so necessary because there is very hot competition in the labour market among executives. If an executive in his forties gets the sack, in spite of being a very able man his chances of getting another job are very slim. I would have thought that one of the problems was to make sure that all executives are employed to the maximum extent. There should be no need for incentives to make executives more efficient. Competition between them must by itself be a tremendous incentive.
My hon. Friend the Member for Dudley (Dr. Gilbert) in his very able speech said that stock options are not available to those who work in the nationalised industries or to civil servants. They are not available to people who work in the Armed Forces. Selling abroad, for instance, particularly selling military equipment, depends very much on the attaches who often do tremendously important work in obtaining contracts. But air and naval and other military attachés do not have this kind of reward. They live on their salary in the same way as executives live on their salaries and the whole idea of stock options seems unfair as between executives of companies and those people who work in the public service.
But there is a very unattractive circumstance attached to stock options because in this country they are restricted only to the very top layer of executives. This is most important. It is only the person who already commands a high salary who is given the privilege and can use this method of avoiding tax. This probably has a bad effect on company morale. Very often chief executives like sales directors depend for their success on sales managers under them. Some of these sales managers actually carry the sales director because they are so efficient and so effective. It seems bad for company morale that the sales director should be given a special privilege and ways of avoiding tax while the lesser executive should not. I cannot think that it is a good thing. It can

only be divisive. The stock option system as it works now is a clumsy device.
One of its particularly unatttractive features is that its whole purpose is to save on salaries at the expense of the public. It seems an absurd situation that we should all have to subsidise enormous companies like ICI and British Leyland, through the taxes we pay, to enable them to give stock options to their employees and to enable them to economise on their salaries. All companies should face the facts of life——

Mr. Hordern: Can the hon. Member say exactly how the subsidy arises?

Mr. Cronin: The stock option eventually means that an executive receives stock which he can sell at a profit without paying tax on it. He would pay tax on any additional salary that was given to him which would give him the same amount of remuneration. It is quite wrong that public funds should be used to subsidise large companies and to help them to save on executive salaries.

Mr. John Hall: I have been following the hon. Member's argument with great interest but I am not quite sure that it is entirely correct. If he examines the experience of most companies he will find that they have to employ executives at what is the market rate at the time, regardless of whether they give a stock option or any form of profit sharing. A profit-sharing scheme in most companies, certainly in my own experience, is paid only over and above the company's salary scale which would be comparable with the salary scales of other companies.

Mr. Cronin: I cannot say that it is my experience that that is the case. I am a director of a very successful company which exports about 85 per cent. of its products and we have not used stock options for many years. Certainly we have not come across any problem about paying people salaries higher than the market rate. There is no restrictive rate on salaries. I find this incomprehensible.

Mr. Hordern: The hon. Member has misunderstood the point. I understood him to say that stock options in some way enabled companies to pay less than the normal salary rates they would pay to an executive. I am merely pointing out that this is not so.

Mr. Cronin: The hon. Gentleman is now misunderstanding me. In effect, what the stock option does is to give an executive a financial privilege instead of being paid a higher salary. It is a financial privilege given to him at the expense of the Revenue, because it means that he pays less income tax and less surtax in the long run. Therefore, such stock options are a form of remuneration for executives which we must regard with considerable dubiety and suspicion. Although I am strongly in favour of executives being given every possible incentive to be successful, I shall have no hesitation in voting with my right hon. and hon. Friends against the Clause

Mr. John Hall: Will the hon. Gentleman tell the Committee whether the system operated successfully in the very successful company of which he is a director?

Mr. Cronin: The hon. Gentleman has had a very fair innings, and must regard me as having sat down.

[Sir ROBERT GRANT-FERRIS in the Chair]

7.0 p.m.

Mr. Tugendhat: It is always a great pleasure to me when the hon. Member for Loughborough (Mr. Cronin) speaks in a debate in which I want to participate, because almost invariably I have the good fortune to catch the eye of the Chair immediately after him. Therefore, I hope that whenever I wish to speak he will come into the Chamber. I regard him as a fortunate omen.
I shall not detain the Committee long, because many of the economic points for and against stock options and incentive schemes have been put forward by hon. Members on both sides. I should like to make rather more of a social than an economic point. I most warmly support the Clause. I have reservations about the Schedule connected with it, which I think is too restrictive, but I warmly support the principle. One of the most important requirements of this country now is that more people should be enabled to accumulate capital out of income.
The most substantial point put by an hon. Member opposite was that schemes of the sort covered by the Clause tend to be too restrictive, in that they are

confined too much to the very highest earners and do not go far enough down the ladder in our companies, unlike the position in the United States. I regard that as a very strong criticism, with which I agree. I regret that at present the schemes are confined to the rich, and I hope that to an increasing extent they will be made much more widely available. The principle that they enable people to accumulate capital out of income is most important.
Under a Labour Government, and indeed under past Conservative Governments, the level of taxation on income has been very high, and this has had the effect of making it very much harder for people to become socially mobile. Those who are born with large inherited wealth have been able to increase their wealth quite substantially in recent years in a variety of perfectly legal and reasonable ways, but those who have been born with ability but no money behind them have found it increasingly difficult to save out of income and to accumulate capital. I regard devices of the sort covered by the Clause, which help people to accumulate capital out of income, as socially highly desirable, and I wish these schemes to become as wide in their coverage as possible.
We live in an age in which many people, both on the shop floor and working in offices, find it very difficult to identify with their companies and with their work. I am not suggesting for one moment that stock options and share incentive schemes solve the problem single-handed. Of course not. But it is very important to try to bring about a much greater degree of identification between individuals of all types and their jobs, and schemes of this sort, which enable people not only to build up capital but also to acquire a stake in the company in which they work, play a part in that. I am not suggesting that it is an overwhelming part, but it is a part, and to that extent too they are welcome.
My final point in favour of the schemes relates to my intervention in the speech of the hon. Member for Dudley (Dr. Gilbert). We can no longer think of British industry simply in terms of this island or even in European terms. We must increasingly think of it in world terms. It is becoming very difficult for British


companies or companies based in the United Kingdom to attract to London some of the executives who work for their foreign subsidiaries overseas whom they would like to have in their head offices here, both for the benefit of the companies themselves and for the benefit of the executives in their career development.
A converse to that is that increasingly some of the more advanced and progressive American and continental companies are becoming very anxious to enable executives working abroad—in this sense, Britain—to acquire shares in the subsidiaries for which they work. Restrictive conditions of the sort we have had here places British executives at a great disadvantage compared with executives working for the same companies in other countries which adopt more liberal rules.
Where possible—I realise that it is not always possible—it is highly desirable to encourage international and multinational companies to involve the people of the countries where they operate more closely in their activities. There are many complications and difficulties in the way of this. One is that our system does not enable British executives to enjoy the same advantages as executives in other countries. I should like to see that disadvantage removed, and the Clause moves in that direction. There are many other more important obstacles outside the realm of this debate.
I welcome the Clause most warmly, though there are many people in my constituency and outside who also support its objectives but believe that the Schedule does not enable them to be most satisfactorily achieved. In Standing Committee those of us who particularly support the Clause will be anxious to bring about certain improvements in the conditions relating to it.

Mr. Dalyell: The hon. Member for Cities of London and Westminster (Mr. Tugendhat) said that it was often his good fortune to be called once my hon. Friend the Member for Loughborough (Mr. Cronin) had spoken. It seems to be my good fortune to be called whenever the hon. Gentleman has spoken. I am rather glad about this, because much that I know about the multinational companies comes from reviewing the hon. Gentleman's book about a year ago. I should

like to take the hon. Gentleman up on this point. In West Lothian we have a large number of multinational companies, providing many of the best jobs in central Scotland. I thought it my business as soon as the Budget announcements were made to discuss with those companies the subject of stock options. It seems that we in this country tend to have the worst of both worlds. As my hon. Friend the Member for Dudley (Dr. Gilbert) said, the system is far too restrictive at the top, and we do not have any of the advantages of the much wider system of options that exists in the United States.
It is curious that the hon. Gentleman should argue the matter on social grounds. If that argument is used, we must ask what the cost is and whether it would not be better for the money to be spent on children's clothes, medical equipment or any of the other items we discussed for many hours recently. Surely the money could be better directed elsewhere?
There is a serious issue here. If it could be proved that multi-national companies in this country are significantly less efficient than they would otherwise he because of the absence of wider stock options, we would listen to the argument, but where is the evidence for any such propositon? The situation has changed even since the mid-1960s. When we examine the figures of graduate unemployment, we realise the pressure of people trying to find suitable positions in industry, to which my hon. Friends the Members for Dudley and Loughborough referred. They are often very able people. Heaven help the man, able or not, who in 1972 for some reason loses his job as an executive and then finds he cannot get any other. In Plessey the graduate entry was down 40 per cent. between 1970 and 1971; in ICL it was 250 down, or 80 per cent.; in Shell, it was down by 15 per cent., which meant 200 fewer graduates; and in Courtaulds it was 130 down, or 46 per cent. So we could go on and on. That is at the junior level of executives. At the senior level positions are far more crowded.
Why, then, do we have to justify the schemes in terms of executives? The hon. Gentleman's whole arguments was conducted in terms of executives. If it is really important to have the feeling of identification to which he referred,


surely foremen and many other long-serving people in every company should have the chance to buy shares? This is a question of going the whole hog.

Mr. Tugendhat: I thought I had made It clear that, as I think the hon. Gentleman will see in HANSARD tomorrow, my points were of general application and should apply as far down the line as possible. I was not arguing the case on whether or not stock options would make companies more efficient. There are arguments to be put forward in that regard, but I was not using them. I was using the straightforward argument that to my mind they were socially desirable.

Mr. Dalyell: I contest very strongly whether any scheme which is foreseeable under the present arrangement is socially desirable, because it is very much limited to the top. If it went further vertically down the tree of any company, if it went right down to the bottom, some of us on this side, while we might not agree, would listen with far more sympathy. It would mean a share-owning democracy, with the undoubted virtues that such a system would have. But it does not seem that realistically in 1972 Britain there is much of a chance of that.
I am not sure that I concede what the hon. Gentleman said in his intervention, because he talked earlier about the importance of bringing people to head offices, presumably to give them an identification with the company.
I have heard it argued that the whole system of share options does two things. First, it operates against mobility, because once a person starts having share options in a particular firm he feels, morally, legally or otherwise, to a certain extent bound to that firm. Secondly, who is to receive the share options? I should be much more extreme, as a result of my conversations in the past two or three months, than even my hon. Friend the Member for Dudley was. Inside industry, the question of who receives share options and who does not often leads to a great deal of bad blood and ill feeling. That is the experience in the north. It may be that others have a different experience. If some people who work for a firm are singled out to be beneficiaries under such a scheme and others are not, we can be certain that word will get around. These

things cannot be kept secret. There is a good deal of bad blood unless the firm is one of the very few that operate a scale for everyone working in them. So I think that internally in industry there are serious disadvantages that should not be swept under the carpet.
7.15 p.m.
The social argument seems to me grotesque. If we are arguing about what should be given away socially, the proposals mooted from both sides in the last few days must take priority over share options. Here again, I must ask the Chief Secretary to spell out precisely why the Chancellor has gone on record as saying that we must do this in the context of international firms, because some of these firms do it and some do not. I do not think that there is any evidence that people who work in international companies or in British companies which do not have share options are in any way less efficient, or less identified with their firms, or less dedicated than those who work for companies which have such schemes. If such evidence exists, we must have it.
I have read the reports of the proceedings on the Finance Act, 1971. Is there not an obligation on the Government to demonstrate why it should be immediately obvious that company executives can be given shares at below market price and pay only capital gains tax on the discount?

Mr. Patrick Jenkin: Perhaps I might help the hon. Gentleman's argument. If a man is given shares below market value, he is taxed on the difference at the time of the grant to ordinary income tax and surtax. Any appreciation in the value of the shares between the date on which he is given them and the date on which he exercises his option is subject to capital gains tax.

Mr. Dalyell: That partly assumes some kind of risk and some kind of falling value of the shares. The fact is that this is an absolute concession of either greater or lesser magnitude to those who are well off. For the hon. Member for Cities of London and Westminster to argue that it helps the man on his way up, that it helps ability in this way, seems to me to be somewhat far fetched and unreal. In fact, this is reinforcing wealth. As I understand it, that is certainly the


case. If I am wrong, then I ask the Chief Secretary to spell out why. But it means, I suggest, much greater incomes for those who are already at the top of industry, those who have made the grade.
Another direct question arises from the article by Mr. Oliver Stanley, which has already been quoted. Mr. Stanley writes:
Subject to that major reservation, the new code must hasten the growth of share schemes in Britain. One side-effect is that future allotments of shares under existing incentive schemes fall within the regulatory power of the code. All such schemes will therefore need review, and possibly amendment to bring them within its scope. That will give both the Revenue and practitioners a mass of onerous work over the next year or so. It is hoped that scheme participants come to appreciate the efforts which need to be made by companies on their behalf.
I have referred to some economic and financial simplifications. What are the administrative costs? I suspect that they might be out of all proportion to any kind of financial benefit that is given to those who are the beneficiaries, let alone to the economic health of the nation.
I address myself now to the Government, to the hon. Member for Cities of London and Westminster and to the hon. Member for Horsham (Mr. Hordern). Are they sure that arguments which might have held good a couple of years ago hold good now? One can admit that there was a shortage of top quality management, or at least a supposed shortage, in 1970. One can talk in these terms now, although I am reluctant to do so because people when called upon will so often rise to the occasion. But that argument cannot be said of 1972.
One of the most alarming features of 1972 is not only the graduate unemployment, about which some of us are questioning Ministers because the figures are alarming, but also the many pathetic cases of those who are by no means incompetent managers but find it impossible to get positions at present. The situation which many hon. Members know to have existed in the United States for five years or more along the big industrial highways outside Boston, Minneapolis and other industrial centres—pathetic cases of highly-skilled people in their fifties and early sixties who cannot get jobs—is unfortunately coming to Britain and be-

coming more and more marked. I have no magic solution to offer, but it is a fact of life.
Granted that there is serious managerial unemployment, is it really sensible to bring in this kind of stock option scheme which really is a red rag to the unions, which makes negotiations with powerful unions much more difficult? The Government must not be blinkered on this fact, because such schemes are seen as a concession to those who are already there and who are better off. If I am wrong, I hope that the Government will tell me so.

Mr. Peter Rees: I hope the hon. Member for West Lothian (Mr. Dalyell) will forgive me if I do not follow him into the byways of graduate unemployment, because that would enlarge the debate beyond what the Committee would perhaps tolerate.
The hon. Gentleman asked about administrative costs. I have no doubt that the Government will give the answer that if they are too high, then, as I hope to demonstrate, the only logical course would be to go back to the pre-1966 position. The hon. Gentleman described the social argument as grotesque. There is a big distinction in principle between a decision as to how the Government should spend money collected or to be collected and as to whether they should fail or should decide not to collect money in a given situation. That must blur the argument and we cannot have a meaningful debate if we take that kind of point.
Tax avoidance is a theme running constantly through speeches of hon. Members opposite. But they do not follow the argument to its logical conclusion. They should ask why people have to go in for what they choose to describe as "schemes of tax avoidance". Why were stock option schemes virtually unknown before 1939 and certainly unknown before 1914? It was because rates of tax were so low that it was possible to give a person a salary net after tax which made him feel adequately compensated for his work. For the hon. Member for Loughborough (Mr. Cronin) to say that he wants people just to get a straight salary, albeit a high salary, may be sound enough if he is not going to vote against the Government's endeavours


to bring down the rates of direct taxation, but he cannot have it both ways. He cannot ride both horses. He must have it one way or the other.
Various other curious points have been made against stock option provision. One does not get them in the nationalised industries, for example. I know that this is not the responsibility of my hon. Friend the Chief Secretary, but perhaps we might consider whether we can reorganise these industries to enable some employees to take part in a share option scheme. This might inject a greater sense of realism and competitiveness into the nationalised industries.
The argument about civil servants and members of the Armed Forces is also rather curious. By definition, they are not commercially motivated people They have joined their services for a different sort of life on a different basis with different values. Because they cannot come in on share option schemes is no real argument against such schemes elsewhere.

Mr. Dalyell: Cannot the hon. and learned Gentleman picture, in the nationalised industries in particular, that a manager given a wallet full of options is going to be in a very difficult position to argue in wage negotiations? Who is to get these options? It would make delicate negotiations almost impossible if they were known—and if they were not known, there would be grave objection to that.

Mr. Rees: The hon. Gentleman has pontificated with enormous assurance on the response of the unions to share option schemes in given situations. I must defer to his specialised knowledge. I would not presume to look into the thought processes of trade union leaders. But I recall that Sir Sidney Greene had great difficulty in getting his salary raised from £3,000 to£5,000. If one could get some share options in the railways, one might have a healthier situation. But that is a rosy view, perhaps, of nationalised industry. I must stick more closely to the debate. On other occasions perhaps I shall be able to discuss these matters with the hon. Gentleman.
Like my hon. Friend the Member for Cities of London and Westminster (Mr. Tugendhat), I see at least two good arguments adduced in favour of stock

option and incentive schemes. I know that he will forgive me for echoing his theme that in a capitalist society—and I am delighted that we are still in one—it must be right to diffuse capital as widely as possible and to give those who have no inherited wealth a chance to build up a capital stake. On that ground, share option schemes can be defended.
Secondly, it is right to give everyone a chance to acquire a capital stake in the companies for which they work. I am sure that it is unhealthy to create a managerial class with no real equity stake in the companies for which they work. I hope that this scheme will in course of time be extended as far down the company range as possible. But unfortunately experience does not augur very well. One knows various companies which have offered their workpeople a chance to acquire shares at reasonable rates and which shares have unfortunately found their way on to the market all too quickly. It may be that the provisions of the Bill will encourage companies to extend their share option schemes.
In the pre-1966 position, it may be that share option schemes were abused. But I do not believe that the abuse was on such a scale as to vitiate their undoubted advantages. In any event, the weapon adopted by the right hon. Member for Cardiff, South-East (Mr. Callaghan), as so often in his fiscal enterprises, was very crude and blunt. In effect, it put an end to share option schemes. But why was it that after orthodox share option schemes were effectively ended in 1966, people searched round for other schemes? It was because the need was there.

Dr. Gilbert: The greed was there.

Mr. Rees: The hon. Member for Dudley (Dr. Gilbert) chooses to make a rather cheap point, as he has done on other occasions. He looks at these things with a characteristically jaundiced eye and has to buttress his speeches with liberal quotations from other people's work, as his own original thinking does not bear close examination, if that is an example of it.

Mr. Hordern: The hon. Member for Dudley (Dr. Gilbert) said that the motivation was greed. Every one of the


schemes to which the hon. Member referred had to be separately passed by the Inland Revenue at the time, and as the then Chancellor was solely responsible, who was following greed but the then Chancellor?

Mr. Rees: Perhaps the then Chancellor recognised that occasionally one has to play with human nature rather than against it. In any event, the schemes were all checked. I do not know whether Somerset House was concerned with the motives of the parties. I presume it was concerned purely with the consequences.
One comes back to the point that there is much more pressure for this kind of scheme. I therefore welcome the moves introduced in the Finance Bill to bring the schemes within an ordered framework as, for instance, retirement benefit schemes have been brought within an ordered framework. I am sure that hon. Gentlemen opposite would accept that if we are to have these schemes it is better that they should be looked at comprehensively and should be covered by ground rules.
Here I regret that I must slightly take issue with my hon. Friend the Financial Secretary, because the ground rules which are found in Schedule 12 are not realistic. They do not match the requirements of most companies. Very few schemes introduced prior to this year will qualify for approval under Schedule 12. I hope, therefore, that when the Bill goes upstairs my hon. Friend will be able to look more liberally at the rules. I will single out one or two which I have no doubt have been drawn to his attention.
It is not realistic to limit a person's right in each year to 40 per cent. of his salary. It is not realistic to limit his accumulated rights to twice his salary in any one year. It may be that he has let the scheme run for three or four years, in which case he will be unduly penalised. It is not realistic to limit option rights to companies in which the employee works, because he may work in an unquoted subsidiary of a public company; nor is it realistic to limit the schemes to full-time employees and directors. Time and again one comes across people who have a variety of jobs in a variety of companies inside one group. By definition they would not qualify.
These are points of detail, but significant points of detail. I have no doubt that my hon. Friend will look carefully at them when the Bill is in Committee upstairs. I do not expect an answer tonight but I hope he will bear in mind my criticism, which I put forward in a constructive spirit. Subject to that I welcome the Clause and will support it.

[Mr. HAROLD GURDEN in the Chair]

7.30 p.m.

Mr. Patrick Jenkin: For those of us who were here until five o'clock this morning it has been an interesting and revealing debate. I had hoped that the area of difference between the two sides of the Committee would be seen to be more a difference of emphasis than of principle but, having heard the hon. Member for Dudley (Dr. Gilbert), my impression is that he has a root-and-branch objection to any scheme along these lines and that he is inviting his hon. and right hon. Friends to pursue him into the Division lobby on such a platform.

Mr. James Wellbeloved: Hear, hear.

Mr. Jenkin: The hon. Member for Erith and Crayford (Mr. Wellbeloved) says "Hear, hear" but it was not wholly on one side. The phrase "capital-owning democracy" fell from the lips of the hon. Member for West Lothian (Mr. Dalyell). That is a concept to which may of us would subscribe.
The Opposition have stated their view, and it is right that the Government should take the opportunity of this Clause to state theirs. We start from the broad proposition that we are operating in a mixed economy with a public and private sector where the great preponderance of manufacturing and service industries are to be found in the private sector—certainly the great preponderance of exports has come from the private sector.
I am not seeking to belittle the public sector, whether central Government and local authority or nationalised; all I am saying is that it is different. My hon. and learned Friend the Member for Dover (Mr. Peter Rees) made the point admirably when he said that on the whole those who go into the public service tend to be differently motivated, and go into


it for perfectly laudable and frequently honourable reasons. But I do not accept the argument that, because a particular institution is inappropriate for and cannot operate in the public sector, therefore it must be wrong and inappropriate for the private sector. We are dealing with different animals.
The private sector does not operate on simple laissez faire capitalist lines such as perhaps existed in an earlier age. Society is now too complex for that. The Government have a regulating function and are pursuing social and political objectives which make inroads into the operation of a capitalist system. Nevertheless, the private sector operates a modern and complex form of capitalism based mainly on the principle of consumer choice, where the main if not the only consideration is to optimise the utilisation of resources. If the resources are to flow to the areas from which they get the greatest return there must be the greatest flexibility. Only in that way can the private enterprise system properly reflect consumer choice. This means that we are operating in a competitive framework and one of the functions of government is to regulate that competition. In a competitive framework one is relying upon incentive to maximise the return on capital.
In a simple Victorian style of capitalism that is perhaps a relatively easy matter. There is a great identity of interest between the owners of a business and its managers, and often they will be the same people. The success of the managers will be directly reflected in the value of the enterprise. It will be able to attract new capital, it will be able to expand and prosper and thus reflect the area of consumer choice.
Today, with our large businesses and large public companies that simple pattern is less clear. There is often a divergence of interest between the owners and managers of a business. In part it is the purpose of company law to regulate that and to make sure that the law and the principles of the law are observed. Here I come to the point of the Clause and of our debate.
It has become increasingly necessary over recent decades to provide some means of reducing and, if possible, eliminating that divergence of interest between

the owners and the managers of the business so as to inject into the business the dynamism and enterprise which has through the ages characterised the owner-manager. In other words, where managers have remote control, where shareholders cannot exercise a detailed day-to-day surveillance—and it is insufficient for them merely to exert their pressure through the market—something else is needed.
I warmly agree with those who have said that the growth in the share incentive schemes since the 1966 legislation is a direct reflection of the need for the stimulus which is provided by these schemes and by the stock option schemes. They are the device which in this country and in Europe—and to an even greater extent in America—has been chosen to seek to link the performance of the managers and the performance of the company, so that part of the rewards of the success of management should accrue to the managers individually and collectively in a form which is identical with the benefit that accrues to the shareholders. That is what a stock option scheme or a share incentive scheme is primarily intended to achieve. Its case rests on the extent to which it seeks to align the interests of the managers with the company as a whole.

Mr. Dalyell: The Financial Secretary is concentrating on the managers in a way that sets the managers, or, more likely, some of the managers, apart from the rest.

Mr. Jenkin: I have been arguing the case in the context of the schemes as most of them exist, and I shall be coming to the wider question. I entirely agree with my hon. Friend the Member for Cities of London and Westminster (Mr. Tugendhat) who said that we want to see the schemes more widely enjoyed and going further down the ladder within organisations.
There is no doubt that the schemes give company employees a greater sense of participation in the affairs of their company and a greater identity of interest. Employees have an incentive not just to maximise their remuneration but to maximise the success of the company. The company finds the schemes


a valuable way of attracting and retaining men and women of enterprise.
If the hon. Member for West Lothian asked what evidence there is of this, I do not suppose that one would be able to prove statistically the cause and effect relationship between the existence of schemes and any special feature one might see in a particular company. It is a matter of common sense that, if the reward accruing to a man is in part of the same nature as that which accrues to the shareholders in a successful company, he is more likely to align his interest with them, to seek a community of purpose and thus to ensure the success of the company. It is common practice for schemes of this sort to be introduced and many of the most successful companies are those in which the managers are motivated to some extent by the existence of a share option scheme.

Mr. Cronin: The hon. Gentleman underestimates the extent to which a well-paid executive can buy shares in a company in the stock market from his own salary, just like everyone else, if he has so much faith in the company.

Mr. Jenkin: I accept that sometimes that is possible, but there are advantages in the stock option scheme in that the company is in a position to get the benefit of the motivation, the alignment of interest and the congruity of purpose—the argument about the executive putting all his eggs in one basket is examined in the report to which I shall refer—and without putting his own assets too greatly at risk.

Dr. Gilbert: On the hon. Gentleman's premise—which for the purposes of argument I accept—that it is desirable to link the remuneration of the executive with the improvement in the profitability of the company and the increase in the price of shares, why is it not possible to do that by linking his salary to those criteria? Why is it necessary to give him a tax free gimmick?

Mr. Jenkin: With respect, the hon. Gentleman has missed the point. The attraction of the scheme is that the reward comes to him in the same way as it comes to the owners of the business.
The hon. Member for Dudley referred to the survey of Share Incentive Schemes

for Executives published by the British Institute of Management at the exorbitant price of£5 to non-collective subscribers. The hon. Gentleman made several quotations from the survey, but I will confine myself to three, all on page 29 under paragraph 7 "Key Points of Report". I am tempted to read the whole two columns all of which virtually supports my case, but I will confine myself to three quotations:
There is plenty of evidence that the most stated aim, retaining and attracting top executives, does and will continue to play an ever-increasing part in executive recruitment. This can only help both the companies' and the country's prosperity.
That is the case which my hon. Friends have been making throughout the debate:
The attitude of participants interviewed dispelled other criticisms levelled at the schemes. From their view point as participants they definitely thought the scheme an additional incentive and surely it is their attitude that counts.
Again, an argument that has been repeatedly advanced on this side of the Committee. Finally:
…it was evident from the investigation that they…
the schemes—
…had a lot to offer participants, companies, shareholders and indeed, the country.
That is the case we make for the reintroduction of the schemes. They are to the benefit of the economy as a whole and, by motivating individuals and stimulating initiative and enterprise in companies, the whole country will benefit and we shall have a more dynamic economy.
7.45 p.m.
There are the other arguments—the international argument, about which there is no one better qualified to tell us than my hon. Friend the Member for Cities of London and Westminster; the argument that we need to weight the acquisition of assets more to those who will accumulate them and without so much emphasis on those who inherit wealth; that we need to provide means whereby companies can be restructured, so that company doctors can come in. This is a favourite way of rewarding company doctors to ensure that they have a very keen and clear incentive to restore the company's health. There is also the argument about the need to


achieve a closer assimilation between the man who works for a large public company and the owner-proprietor of a smaller company.
The essence of the scheme is that the enhancement of the shares in the option or of the shares in the share incentive scheme should be treated as a capital gain and should be subject to capital gains tax. This is right, because in many of these cases the holder of the option risks a loss as well as a gain. What the Government have to do is to balance the economic benefit to the country as a whole, and the other social objectives to which my hon. Friends have referred, with the interests of the Revenue.
In 1966 the Labour Government had, and to some extent they still have, this obsession with tax avoidance, and the balance swung much too far in their efforts to counter tax avoidance. In that aim they killed off the stock option schemes by taxing the whole of the gain to income tax and surtax. As my hon. Friends have pointed out, the result was the mushrooming growth of share incentive schemes, with a very rapid rate of expansion, to find a way round the 1966 legislation.
My hon. Friend the Member for Horsham (Mr. Hordern) quoted briefly the exchange that took place in Committee last year when my right hon. Friend my predecessor as Chief Secretary said:
Our object should be to provide incentives to the employee…to deal with stock option and share incentive schemes, and to ensure that all companies, through the spectrum of size and ownership, are equally able to introduce such measures should they wish to do so. At the same time we must ensure that adequate and proper provision is made against using such schemes as tax avoidance devices.
My hon. Friend the Member for Horsham also drew the Committee's attention to the reply of the then Labour Front Bench finance spokesman, the hon. and learned Member for Lincoln (Mr. Taverne):
I do not disagree with much of what the Chief Secretary has said. To be frank, I was not entirely happy about the course which the law has taken in the past…the line advocated by the Chief Secretary is one that I do not find unacceptable."—[OFFICIAL REPORT. Standing Committee H, 21st June, 1971; c. 938–9.]
It was on that basis that I had hoped to find not so much a difference of

principle between the two sides as perhaps a difference of emphasis.
The legislation is now before the Committee in its main features. It aligns the law on share incentive schemes and stock options and it provides a machinery and rules for Revenue-approved schemes.
The hon. Member for Dudley seemed to suggest at one point that the growth of share incentive schemes represented some sort of laxity on the part of the Inland Revenue. That view must be utterly refuted. The Revenue was exercising an unofficial scrutiny of share incentive schemes because the only legislation that was on the Statute Book was the 1966 legislation against stock option schemes. The Revenue had no power to deal with share incentive schemes. It was asked to undertake a scrutiny of those. It did so and it indicated those to which it could not reasonably take exception.
We now have the rules, the limits on the amounts of options, the limits on the proportion of share capital, the requirement of shareholder approval, the length of time that an option should be held or that the shares bought should be held and the qualifications of the option shareholder. We shall be able to examine these in Standing Committee when we discuss Schedule 12.
Our purpose is to achieve the objects for the benefit of the economy while not opening the door to widespread tax avoidance.
I come to the point raised by the hon. Member for West Lothian and my hon. Friend the Member for Cities of London and Westminster. It is not our intention that these schemes should be confined to executives only. Incentives via shareholdings for men on the shop floor are equally valuable but they raise different issues, notably the need to protect the individual's capital and to recognise that there is inevitably a much less direct link between the value of the shares and the individual's own efforts.
My right hon. Friend the Chancellor is having a full study carried out into how these schemes for employees generally can be given greater encouragement, hearing in mind the importance of ensuring the proper safeguarding of the employee's capital.

Mr. Dalyell: When is it likely to report?

Mr. Jenkin: I am not able to tell the Committee that at this stage. The study is at an early stage.
My hon. and learned Friend the Member for Dover made a number of criticisms and expressed the view that the conditions set out in Schedule 12 are altogether too restrictive, that we have drawn the line between encouraging the economy and preventing tax avoidance in the wrong place, and that the restricted terms upon which Inland Revenue consent will be forthcoming, coupled with the extension of the 1966 legislation to share incentive schemes, has left the situation, not better, but worse than it was before the Budget.
Similar criticisms have been voiced by many outside the House of Commons and among them have been some of the most responsible bodies in the country—not only men concerned with the efficiency of the economy and incentive for management but men who are acutely aware of the vital importance of preserving and improving relations at both firm and industry level with the representatives of the shop floor.
I think that it is unwise to exaggerate the so-called provocative effect of this. This is not the view of the men in industry and those who are responsible for conducting negotiations with trade unions.
Our aim in drawing up these terms was to hold the balance. My right hon. Friend the Chancellor of the Exchequer has considered the many representations that have been made. I have taken the most careful note of the points which a number of my hon. Friends have made this afternoon. These are matters which fall for discussion on the Schedule. We still have a week or two before we are likely to reach the relevant Clauses and Schedules.
I assure the Committee that in this period we shall give the most careful thought to all the views that have been expressed. It would certainly not be our wish to place on the Statute Book a code of conduct for what, as I have already said, is an important area of policy towards industry which in the eyes of many reasonable people could be taken as frustrating rather than en-

couraging the objectives we have in mind. On the other hand, it is important to recognise that, although the 1966 legislation went much too far, as the hon. and learned Member for Lincoln indicated last year, the Government has a responsibility to ensure that the schemes properly serve the purpose for which they are designed and are not simply a way of putting remuneration into the hands of executives in a form which attracts tax at a significantly lower level than if it were paid as salary.
As I have said, we must hold the balance. It will be my right hon. Friend's purpose over the next week or two to come to conclusions whether the Bill fairly holds that balance or whether modifications are required.
Mr. Gurden, you and your predecessors have allowed the debate to range very wide. For this the Government and, I am sure, all those who have participated wish to thank you. The Clause is confined to one aspect of the scheme, but the debate has covered the issue of principle. I believe that the Clause is fully justified. I believe that the principle is fully justified. I hope that my right hon. and hon. Friends will join me in the Lobby in declaring that conviction.

Dr. Gilbert: The Financial Secretary said that he was surprised at the attitude of this side of the Committee. He will have noticed that every hon. Member who spoke from this side expressed fundamental objections to stock option and share incentive schemes. I become a little weary of hearing how good an incentive these schemes are. I repeat the one statistic I used earlier, from page 10 of the report of the British Institute of Management. In only two cases out of 54 covered by the survey was the individual performance of the executive a set requirement for participation in the scheme.
The Chief Secretary at no time addressed himself to the fact that executives can make very considerable gains which will be taxed at a highly preferential rate resulting from effects in no way contributed to by their own efforts. This, as my hon. Friend the Member for Loughborough (Mr. Cronin) pointed out in a most eloquent speech, is what is so basically unfair about these schemes. That is the great criticism we have of them.


They are unfair. They help very few people. They help those who need help least. They help people who ride on top of the backs of the employees of the companies of which those who are helped are usually directors.
We have been talking about the fact that only 1 per cent. of executives have participated in these schemes. In the larger companies this drops to about 0·2 per cent. However, nearly 90 per cent. of directors participate.
I endorse what my hon. Friend the Member for West Lothian (Mr. Dalyell) said about the social divisiveness of these schemes. The hon. Member for the Cities of London and Westminster (Mr. Tugendhat) made a frank and generous admission about certain defects of these schemes, and I congratulate him on that. I would not expect anything else of the hon. Gentleman. I was as surprised as was my hon. Friend the Member for West Lothian that the hon. Gentleman should detect elements of social desirability about these schemes. They are, as the hon. Gentleman himself admits, designed or are at least operating almost exclusively for the benefit of the rich. That is another reason why we reject them.
The most preposterous argument was that put forward by the hon. and learned Member for Dover (Mr. Peter Rees). It was not so much an argument as an assertion. He asked: why do people have to enter stock option schemes? The answer quite simply is that people do not have to do so; they want to enter them. The hon. and learned Gentleman rightly identified reasons that made these schemes attractive. He cited the view that, in his view, rates of tax on earned income were too high, and from his point of view that is a perfectly valid point. The hon. and learned Gentleman may say that the salaries paid to high executives by his standards are too low, which, again is a perfectly valid point.
Neither the hon. and learned Gentleman nor the Chief Secretary at any time addressed himself to our fundamental objection, which is this: if it is desired to

reward an executive, he should be rewarded in the same way as everybody else. If it is thought that an executive is not getting sufficient reward, the remedy should be either to reduce the tax rate or to increase his pre-tax salary. The remedy is not that he should be the beneficiary of a system of taxation which will be a privilege to him that no other employees in his company enjoy.

Mr. Peter Rees: May I take it, therefore, that the hon. Gentleman will vote in favour of the reduction of the higher rates of income tax?

Dr. Gilbert: Certainly not. I carefully said, "by the hon. and learned Gentleman's standards", not by mine. I think that income differentials are quite high as it is. There is no reason to add to them by tax gimmicks of this sort.
I end by making one last quotation from this Management Survey Report of the British Institute of Management. I have to apologise to the Official Reporters who have been waiting for it so long, but I did not dare to let it out of my hands before I heard which sections of it the Chief Secretary would quote. On page 22 he will find a section headed "Labour Party" which says:
The Labour Party's views are also important because schemes are long term, sometimes ten years or more, and continuity of legislation is important…If legislation is to be changed it would be preferable to have the agreement of both parties, for if the fortunes of these schemes are to fluctuate with each change of Government they could fall into disuse.
It will be no surprise to the Committee that the Labour Party has not been consulted in drawing up any of these schemes. In no way are the views of the Labour Party represented in the operation of those schemes.
8.0 p.m.
I have very little doubt that the policy statement which will go before the Labour Party Conference in October this year will include passages tantamount to the total rejection of schemes of this sort, and I have no hesitation in inviting my hon. and right hon. Friends to divide against this Clause.

Question put That the Clause, as amended, stand part of the Bill:—

The Committee divided: Ayes 188, Noes 166.

Division No. 188.]
AYES
  [8.1 p.m.


Adley, Robert
Grylls, Michael
Neave, Airey


Allason, James (Hemel Hempstead)
Hall, Miss Joan (Keighley)
Noble, Rt. Hn. Michael


Amery, Rt. Hn. Julian
Hall, John (Wycombe)
Normanton, Tom


Astor, John
Hannam, John (Exeter)
Nott, John


Atkins, Humphrey
Harrison, Brian (Maldon)
Onslow, Cranley


Baker, W. H. K. (Banff)
Hastings, Stephen
Oppenheim, Mrs. Sally


Balniel, Lord
Havers, Michael
Osborn, John


Barber, Rt. Hn. Anthony
Hawkins, Paul
Owen, Idris (Stockport, N.)


Beamish, Col. Sir Tufton
Hayhoe, Barney
Page, Graham (Crosby)


Bell, Ronald
Higgins, Terence L.
Pardoe, John


Bennett, Dr. Reginald (Gosport)
Hiley, Joseph
Parkinson, Cecil


Biffen, John
Hill, James (Southampton, Test)
Peyton, Rt. Hn. John


Biggs-Davison, John
Holland, Philip
Pike, Miss Mervyn


Blaker, Peter
Holt, Miss Mary
Pink, R. Bonner


Boardman, Tom (Leicester, S.W.)
Hooson, Emlyn
Powell, Rt. Hn. J. Enoch


Body, Richard
Hordern, Peter
Price, David (Eastleigh)


Boscawen, Robert
Hornby, Richard
Proudfoot, Wilfred


Bossom, Sir Clive




Bowden, Andrew
Howe, Hn. Sir Geoffrey (Reigate)
Pym, Rt. Hn. Francis


Braine, Bernard
Howell, David (Guildford)
Reed, Laurance (Bolton, E.)


Bray, Ronald
Howell, Ralph (Norfolk, N.)
Rees, Peter (Dover)


Brinton, Sir Tatton
Hutchison, Michael Clark
Ridley, Hn Nicholas


Brocklebank-Fowler, Christopher
Jenkin, Patrick (Woodford)
Roberts, Wyn (Conway)


Bruce-Gardyne, J.
Kaberry, Sir Donald
Rost, Peter


Buchanan-Smith, Alick(Angus,N&amp;M)
Kellett-Bowman, Mrs. Elaine
Royle, Anthony


Butler, Adam (Bosworth)
Kilfedder, James
St. John-Stevas, Norman


Campbell, Rt. Hn.G.(Moray&amp;Nairn)
King, Evelyn (Dorset, S.)
Sharples, Richard


Carr, Rt. Hn. Robert
King, Tom (Bridgwater)
Simeons, Charles


Chapman, Sydney
Kinsey, J. R.
Sinclair, Sir George


Chataway, Rt. Hn. Christopher
Kirk, Peter
Skeet, T. H. H.


Churchill, W. S.
Knox, David
Soref, Harold


Clark, William (Surrey, E.)
Lane, David
Speed, Keith


Clegg, Walter
Langford-Holt, Sir John
Spence, John


Cooke, Robert
Legge-Bourke, Sir Harry
Stainton, Keith


Coombs, Derek
Le Marchant, Spencer
Steel, David


Cooper, A. E.
Longden, Gilbert
Stokes, John


Cormack, Patrick
Loveridge, John
Stuttaford, Dr. Tom


Costain, A. P.
Luce, R. N.
Stcliffe, John


Crouch, David
McCrindle, R. A.
Taylor,Edward M.(G'gow,Cathcart)


Crowder, F. P.
Maclean, Sir Fitzroy
Taylor, Frank (Moss Side)


Davies, Rt. Hn. John (Knutsford)
McNair-Wilson, Michael
Tebbit, Norman


Deedes, Rt. Hn. W. F.
McNair-Wilson, Patrick (NewForest)
Thatcher, Rt. Hn. Mrs. Margaret


Dixon. Piers
Maddan, Martin 
Thorpe, Rt, Hn. Jeremy


du Cann, Rt. Hn. Edward
Madel, David
Trafford, Dr. Anthony


Dykes, Hugh 
Maginnis, John E.
Trew, Peter


Edwards, Nicholas (Pembroke)
Marten, Neil
Tugendhat, Christopher


Elliot, Capt, Walter (Carshalton)
Mather, Carol
Turton, Rt. Hn. Sir Robin


Eyre, Reginald
Maude, Angus
van Straubenzee. W. R.


Fell, Anthony
Maudling, Rt. Hn. Reginald
Waddington, David


Fenner, Mrs. Peggy
Mawby, Ray
Walker-Smith, Rt. Hn. Sir Derek


Fletcher-Cooke, Charles
Maxwell-Hyslop, R. J.
Warren, Kenneth


Fookes, Miss Janet
Meyer, Sir Anthony
Weatherill, Bernard


Fortescue, Tim
Mills, Peter (Torrington)
Wiggin, Jerry


Fox, Marcus
Mills, Stratton (Belfast, N.)
Wilkinson, John


Gardner. Edward
Moate, Roger
Winterton, Nicholas


Gibson-Watt, David
Molyneaux, James
Woodhouse, Hn. Christopher


Gilmour, Sir John (Fife, E.)
Monks, Mrs. Connie
Woodnutt, Mark


Goodhart, Philip
Monro, Hector
Worsley, Marcus


Goodhew, Victor
Montgomery, Fergus
Wylle, Rt. Hn. N. R.


Gorsl. John
Morgan, Geraint (Denbigh)
Younger, Hn. George


Gower, Raymond
Morgan-Giles. Rear-Adm. 



Grant, Anthony (Harrow, C.)
Morrison, Charles
TELLERS FOR THE AYES:


Gray, Hamish
Mudd, David
Mr. Michael Jopling and


Green, Alan
Murton, Oscar
Mr. Kenneth Clarke.


Griffiths, Eldon (Bury St. Edmunds)
Nabarro, Sir Gerald 





NOES


Albu, Austen
Blenkinsop, Arthur
Concannon. J. D.


Allaun, Frank (Salford, E.)
Booth, Albert
Cronin, John


Allen, Scholefield
Broughton, Sir Alfred
Crosland, Rt. Kn. Anthony


Archer, Peter (Rowley Regis)
Brown, Bob (N'c'tle-upon-Tyne,W.)
Cunningham, G. (Islington. S.W.)


Ashton, Joe
Brown, Hugh D. (G'gow, Proven)
Cunningham, Dr. J. A. (Whitehaven)


Atkinson, Norman
Buchan, Norman
Dalyell, Tarn


Bamett, Joel (Heywood and Royton)
Buchanan, Richard (G'gow, Sp'burn)
Davies, Denzil (Llanelly)


Baxter, William
Campbell, I. (Dunbartonshire, W.)
Davies, Ifor (Gower)


Benn, Rt. Hn. Anthony Wedgwood
Carter, Ray (Birmingh'm, Northfield)
Davis, Terry (Bromsgrove)


Bennett, James (Glasgow, Bridgeton)
Carter-Jones, Lewis (Eccles)
Deakins, Eric


Bishop, E. S.
Castle, Rt. Hn. Barbara
de Freitas, Rt. Hn. Sir Geoffrey




Dell, Rt. Hn. Edmund
Lamond, James
Rees, Merlyn (Leeds, S.)


Dempsey, James
Lawson, George
Richard, Ivor


Doig. Peter
Lee, Rt. Hn. Frederick
Robertson, John (Paisley)


Dormand, J. D.
Lestor, Miss Joan
Rodgers, William (Stockton-on-Tees)


Douglas, Dick (Stirlingshire, E.)
Lever, Rt. Hn. Harold
Roper, John


Duffy, A. E. P.
Lewis, Ron (Carlisle)
Rose, Paul B.


Dunn, James A.
Lomas, Kenneth
Ross, Rt. Hn. William (Kilmarnock)


Dunnett, Jack
Loughlin, Charles
Rowlands, Ted


Eadie, Alex
Lyon, Alexander W. (York)
Sandelson, Neville


Edwards, Robert (Bilston)
Lyons, Edward (Bradford, E.)
Sheldon, Robert (Ashton-under-Lyne)


Edwards, William (Merioneth)
Mabon, Dr. J. Dickson
Short, Mrs. Renee (W'hampton,N.E.)


Ellis, Tom
McBride, Neil
Sillars, James


Evans, Fred
McCartney, Hugh
Silverman, Julius


Ewing, Henry
McElhone, Frank
Skinner, Dennis


Fletcher, Ted (Darlington)
Mackenzie, Gregor
Smith, John (Lanarkshire, N.)


Foley, Maurice
Mackintosh, John P.
Spearing, Nigel


Galpern, Sir Myer
Maclennan, Robert
Spriggs, Leslie


Garrett, W. E.
McMillan, Tom (Glasgow, C.)
Stallard, A. W.


Gilbert, Dr. John
Mallalieu, J. P. W. (Huddersfleld, E).
Stewart, Donald (Western Isles)


Golding, John
Marks, Kenneth
Stoddart, David (Swindon)


Gourlay, Harry
Marsden, F.
Stonehouse, Rt. Hn. John


Grant, George (Morpeth)
Marshall, Dr. Edmund
Strang, Gavin


Hamilton, William (Fife, W.)
Mason, Rt. Hn. Roy
Summerskill, Hn. Dr. Shirley


Hamling, William
Meacher, Michael
Swain. Thomas


Hannan, William (G'gow, Maryhill)
Mellish, Rt. Hn. Robert
Taverne, Dick


Harper, Joseph
Mendelson, John
Thomson, Rt. Hn. G. (Dundee, E.)


Harrison, Waller (Wakefield)
Millan, Bruce
Tlnn, James


Horam, John
Miller, Dr. M. S.
Tuck, Raphael


Hughes, Rt. Hn. Cledwyn (Anglesey)
Mitchell, R. C. (S'hampton, Itchen)
Urwln, T. W.


Hughes, Mark (Durham)
Morgan, Elyslan (Cardiganshire)
Varley, Eric G.


Hughes, Robert (Aberdeen, N.)
Morris, Alfred (Wythenshawe)
Walnwright, Edwin


Hunter, Adam
Morris, Charles R. (Openshaw)
Walden, Brian (B'm'ham, All Saints)


Janner, Greville
Murray, Ronald King
Wallace, George


Jay, Rt. Hn. Douglas
O'Halloran, Michael
Watkins, David


Jenkins, Hugh (Putney)
Orme, Stanley
Wellbeloved, James


Jenkins, Rt. Hn. Roy (Stechford)
Oswald, Thomas
Wells, William (Walsall, N.)


John, Brynmor
Padley, Walter
White, James (Glasgow, Pollok)


Johnson, James (K'slon-on-Hull, W.)
Pannell, Rt. Hn. Charles
Whitlnrlr William


Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Parry, Robert (Liverpool, Exchange)
Wilson, Alexander (Hamilton)


Jones, Gwynoro (Carmarthen)
Pentland, Norman
Wilson, Rt. Hn. Harold (Huyton)


Jones, T. Alec (Rhondda, W.)
Perry, Ernest G.
Woof, Robert


Kaufman, Gerald
Prentice, Rt. Hn. Reg. 



Kclley, Richard
Prescott, John
TELLERS FOR THE NOES:


Kerr, Russell
Price, J. T. (Westhoughton)
Mr. Ernest Armstrong and


Kinnock, Neil
Rankin, John
Mr. James Hamilton.


Lamb, is David

Question accordingly agreed to.

Clause 73, as amended, ordered to viand part of the Bill.

Clause 63

ALTERATIONS OF PERSONAL RELIEFS

Sir Gerald Nabarro: I beg to move Amendment No. 72, in page 43, line 36, leave out '£634 and£929' and insert
'£675 and£1,000'.
The most impressive passages of the Chancellor's Budget speech this year undoubtedly related to allowances for personal taxation, and I was most impressed by what my right hon. Friend said about retirement pensioners:
Last autumn the retirement pension was increased by 20 per cent. This autumn—the first time for 20 years that there have been increases only a year apart—the pension will he increased by a further 12½ per cent. the standard pension for a married couple will, therefore, be increased by £1.20 from the present rate of£9.70 to£10.90. The

standard rate for a single person will be increased by 75p, from£6 to£6.75.
Later, when dealing with personal allowances, my right hon. Friend said:
The income limits for age exemption will also be raised, to£634 for a single person and to£929 for a married couple. The limit for small income relief will be raised to£550."—[OFFICIAL REPORT, 21st March, 1972; Vol. 833, c. 1355–89.]
There are about 7½ million retirement pensioners in Britain, and the figures which relate particularly to the Amendment were given in answer to a Question of mine on 15th May, when the Minister of State said:
The estimated numbers of retirement pensioners in the United Kingdom liable to tax for 1972–73 are 750,000 married couples and I million single persons. The estimated cost of raising the limits for age exemption as indicated is£8 million for the full year assuming that the marginal fraction was unaltered."—[OFFICIAL REPORT, 15th May, 1972; Vol. 837, c. 25.]
About three-quarters of all pensioners have other sources of income—that is sources of income other than their State


retirement pension. It may be an occupational pension, it may be an income from working full time or part time, but my case this evening is that the financial margin between the amount of the State pension and the point at which the pensioner commences paying income tax—that is the threshold—is too narrow, for reasons with which I hope the Committee will agree.
The fact is that a single old-age pension, when increased to£6.75, is equal to£351 a year. The margin between that point and£634—being the threshold—is only£283, or about£5.50 per week. Not very much work is entailed at today's hourly rates to earn£5.50 a week, and my case is that even the earnings rule for retirement pensioners—women between the ages of 60 and 65, and males between the ages of 65 and 70—is vastly more than£5.50 per week.
I find in my constituency and on moving among elderly people, and even among geriatrics, that there is great resentment today at the relatively low levels at which income tax becomes payable, having regard to extremely high prices, notably for food. Here I pause to say that I attribute no blame in this matter. I do not want to enter into a lot of party political argy-bargy about the price of food, or the increased price of food, but it is the fact that food has increased in price by more than 17 per cent. in the 22 months since June, 1970, and as a retirement pensioner spends on average more than 50 per cent. of his pension on food that is a significant factor.
A single person is taxed on everything that he earns above about£5.50 a week. For a married couple the increased pension at£10·90 a week is equal to£567 a year approximately. The margin between that figure and the threshold for income tax purposes at£929 is a mere£362 a year, which is almost exactly£7 a week. To allow only£7 a week to be earned by a married couple in addition to their State pension before they cross the threshold into the payment of income tax is, I submit, much too small a figure.
My right hon. Friend has generously increased the age relief, and I congratulate him on doing so. I am using this opportunity as a trailer for next year.
I hope that there will be a revision of thinking among men of all parties in the House who join me in the sympathy which they extend to retirement pensioners in times of rising prices, extremely high food costs and increased rent costs, often with inadequate housing, to say nothing of fuel costs which have risen precipitously. I should like to see a totally revised approach to the taxation of the elderly next year. I am talking of personal taxation.

Mr. Charles Loughlin: I am very disappointed by the hon. Gentleman's reference to using this as a trailer. I accept in toto the case he is presenting, but many of the people for whom he is rightly pleading may well be dead by next year. Using this as a trailer is only half the fight. Could he not argue, even at this late stage of the Bill, that his hon. Friend the Minister ought to deal with this question tonight?

Sir G. Nabarro: My use of the word "trailer" was in the context of a total revision of taxation arrangements for the elderly. I should dearly love the Chancellor to reply to the debate and to say. "Yes, we shall raise the threshold of income tax from£634 to£675—£41 per annum—and rom£929 for a married couple to£1,000, an increase of£71 per annum." I should dearly love him to accept those figures as presented in the Amendment.
But that is only rather less than half of my argument. What I should like to see done with retirement pensions is a recognition in the tax system and figures of the fact that the more elderly a pensioner becomes, the greater is the cost of living for that man or woman, the more protection they require, and the more better food they require—though the volume may net be greater, the quality should he better—to sustain them. The comforts they require should be improved.
If one digresses a little on the cost of living for the elderly, one could mention the extraordinary arrangements that we have for radio and television licences. I said to the Minister of Posts and Telecommunications recently that I should prefer to see retirement pensioners relieved entirely of the cost of radio and television licences. It is all part of the provision for the elderly which I believe ought to increase with every year of age


after the age of 65, rather than tend to decline through the additional costs of the items they require for life.

Mr. J. T. Price: I, too, share the views being expressed by the hon. Member for Worcestershire, South (Sir G. Nabarro). He has made what is, for him, a very moderate speech, and we all agree with him. But he could make his case even stronger by referring to the fact that of the 7½ million people on retirement pensions, at least 1 million, probably 1½million, are either widows or widowers maintaining their houses and being treated for tax purposes as single people. Therefore, to put the threshold at£12 a week for a person maintaining the house that has been the family home until either the wife or the husband, as the case may be, has died and left the other as a single person, is quite wrong because no one can hope to maintain even the most modest house on that sort of money when called upon to pay tax on what is left.

Sir G. Nabarro: I am grateful to the hon. Gentleman. He has added a point to my argument.
I now proceed to the revision I seek in the threshold and in the application of income tax benefits and reliefs to the elderly. As a total revision of the present system, I should like to see an arrangement whereby the income tax liability of a single person or a couple on retirement pension is reduced by 10 per cent. per annum for every year over the age of 65, up to a limit of an income of£2,000 per annum. Thus, at the age of 66 the income tax liability would be less 10 per cent., at 67 income tax liability would be less 20 per cent., at 68 it would be less 30 per cent., and so on to the age of 75, with an income tax liability less 100 per cent. That is up to a maximum of£2,000 income per annum, from all sources aggregated—State retirement pension, occupational pension, if any, or any form of earnings and income. That would be a realistic appreciation of the fact that elderly men and women find that the cost of living increases by approximately 10 per cent. per annum, in arithmetical progression. The income tax system ought to give a realisation to that simple fact.
What I have said about the general revision of these arrangements is a trailer Vol. 837

for next year. Next year I shall seek to move an Amendment to the Finance Bill, which is always in order because there has to be a Clause in such Bills dealing with income tax rates, and one can always amend it in the sense I have indicated. All I seek to do this year is to cause the single person's income tax threshold to increase from£634 to£675 and the married couple's threshold from£929 to£1,000.
But I say to the Chief Secretary that it is preposterous to write into financial statutes these irregular figures such as£929. Who on earth in the Treasury thought up that one? It is nearly as potty as the Conservative Chancellor of the Exchequer who thought up a standard rate of tax at 7s. 9d. in the£. I blasted him then, in 1959, for thinking up that rate. I asked why we could not have a rate of 8s. so that everyone could calculate it freely and mentally, or a rate of 7s. 6d., three half-crowns in the£. In the same way, in principle, why cannot we have round figures, such as a threshold of—1,000 a year, for age relief?

Mr. Kenneth Lewis: I am worried about that point in case any Chancellor decided to round the figures upwards, in which case that would be a disadvantage. There is a great deal of talk at present about prices having risen because shopkeepers have rounded upwards on the introduction of decimal currency. If the Chancellor of the Exchequer rounded up the income tax, that would be a great disadvantage.

Sir G. Nabarro: No Conservative Chancellor would do anything so silly. I do not think for a moment that that would occur. It is only a temporary mental aberration on the part of the Chief Secretary, if not the Chancellor, that they have alighted on figures such as£929. Perhaps the Chief Secretary can say what particular merit the figure of£929 has. It ought to be a round figure. The figure of£929 ought to be a round£1,000, and the£634 ought to he a tidy£675.
That is my case. I am not passionate about it this year. I seek the debate as a curtain raiser for next year. I have called this a "trailer" because I want to see allowances for income tax for the elderly drastically and realistically revised.

Mr. Loughlin: The hon. Member for Worcestershire, South (Sir G. Nabarro) has presented his case in a very temperate and comprehensive fashion.
I have spoken to many old people in my constituency who have, by one means or another, augmented their retirement pension, and one of the things which causes them great resentment is the amount of tax which they have to pay. I shall be very interested in what the Financial Secretary has to say on the Amendment. I have been a Member for a number of years, and I know that the hon. Member for Worcestershire, South will not take offence if I say to him that he and I have not normally been in accord with each other politically, but it will be fascinating to hear the case which the Chief Secretary presents against the hon. Gentleman.

[MR. E. L. MALLALIEU in the Chair]

8.30 p.m.

I am sorry that the hon. Member for Worcestershire, South spoke about the Amendment being a trailer for next year. When we speak of old people, we are dealing not only with people of 65 years of age but also with people of 85 years of age. While I am always eager to assist those who are in what I call the immediate retirement category, I also have in mind people in the later stage of retirement. I see no reason why a plea should not be made for those who have been thrifty during their lives and who have managed to put money by and to accumulate capital or investments.

I have difficulty as a Member of Parliament in explaining the situation in which a man and woman, having striven to purchase their house, have then retired on the retirement pension but, because they have purchased their house instead of being tenants, their retirement pension is restricted to the flat-rate pension, whereas a tenant is able to obtain not only the retirement pension but also a supplementary pension to pay for the rent.

The Chief Secretary may not be interested in this matter, but it is very important. Many complaints have been made to me that thrift and an attempt by people to better themselves have been, marginally at least, a handicap during

retirement. If the Chief Secretary were prepared to accept the Amendment—even though I agree with the hon. Member for Worcestershire, South that it is a little too modest in its approach—we should be paying a tribute to those people who have been inclined to look after themselves in the past.

I hope that the Chief Secretary will give sympathetic consideration to the Amendment. It will not cost the Treasury a lot of money.

Sir G. Nabarro: The figure is£8 million.

Mr. Loughlin: If that is correct, I can tell the Chief Secretary that figures have been bandied about in this House substantially in excess of£8 million on much less worthy issues. If it costs us£8 million—in the context of the total revenue£8 million is an infinitesimal amount£and it produces for old people who have done whatever they could for themselves during their working lives one additional iota of happiness in addition to that which they normally could expect, it will be—8 million well spent.
I hope that the Chief Secretary, if he cannot accept this modest Amendment—it is not a trailer for next year as the hon. Gentleman has declared it to be—will present to the Committee a substantial case why he cannot accept it.

Mr. J. T. Price: Only in the last couple of weeks have I drawn to the attention of the Financial Secretary to the Treasury two cases that bear almost exactly on the point that has been argued by the hon. Member for Worcestershire, South (Sir G. Nabarro). Like my hon. Friend the Member for Gloucestershire, West (Mr. Loughlin) I have been privileged to spend many years here and have had very many problems sent to me from elderly people in my constituency who have been completely baffled by the tax liabilities they are asked to undertake on small retirement incomes.
One knows, without spelling out all the technical details, which may be a subject for another occasion, that there has recently been a good deal of criticism of all the tax allowances that are given to encourage the working population and others to pay contributions to industrial pension funds. Many hon. Members still appear to think that people who receive


a tax allowance when they are paying their contributions to an industrial scheme, to provide an extra income when they retire, are getting some kind of bonanza from the Treasury which gives them an advantage over other people who have no special provision of that kind. Nothing could be further from the truth.
The Chief Secretary will not thank me for telling him what is obvious to him as a technical servant of the Treasury, but what most people do not understand is that those who have had the tax allowance whilst paying the contributions, when they come to draw the pension from the industrial fund are obliged to pay tax at the standard rate on quite small pensions. These small extra incomes bring them above the tax threshold. I have long believed that the tax thresh-hold in these cases is far too low. I ask the Chief Secretary to consider giving greater relief to the people with small incomes who find themselves mulcted in taxation when they retire. If he considers some of the very sophisticated contracts that are being sold by some insurance companies on single premium annuities, with all the tax reliefs that accrue by doing it by way of a capital sum instead of an annuity, he will find that certain people who are properly and well-advised by technical experts in that sphere are getting far better tax advantages out of our system of pensions than are millions of orthodox people who are drawing little pensions out of industrial funds.
I do not want to exaggerate, but there can be no real justification for requiring a man or woman living as a single person to keep the home going after the partner has died on£634 a year and being liable to pay quite a few pounds in taxation.
From that point of view I welcome the enterprise of the hon. Member for Worcestershire, South (Sir G. Nabarro) in bringing this matter to the notice of the Committee. He sometimes brings issues to the notice of the House which arouse my strong opposition. However, one has to give praise when the sinner repenteth and comes forward with some rational and acceptable proposal. I should be the first to commend him in whatever part of the Committee he happened to be sitting, if he will not take that unkindly.

Mr. Loughlin: My hon. Friend even commends me at times.

Mr. Price: My hon. Friend the Member for Gloucestershire, West (Mr. Loughlin) says that I even commend him at times. However, I am being taken away from my subject.
I do not want to detain the Committee on the Amendment. I suggest to right hon. and hon. Gentlemen who are responsible for the levying of taxation that a strong and valid case has been made out for those who are drawing modest incomes from two sources, but are chiefly relying on the State retirement pension for which they have qualified under the national insurance scheme. Such people, although they may receive benefit from some small friendly society into which their parents may have put them when they were at school, find that the small amount they draw is aggregated with their other income and they have to pay tax on it. I appeal to the Minister to give serious thought to the Amendment and to demonstrate that the Government realise that a case has been made out which should be answered in practical terms.

Mr. Patrick Jenkin: It is always a demanding occasion on a Treasury Minister when answering a debate of this nature, which clearly engages the sympathies of hon. Members on both sides of the Committee, and he has, however regretfully, to advise the Committee not to accept the Amendment. That is the advice which I fear I must give the Committee this evening.
My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) made it clear that he had two purposes in moving the Amendment. The first was that expressed in the Amendment, namely, to raise the limits for age exemption above the levels fixed in the Bill.
The second was to serve notice on us that he is looking for a totally revised basis of taxation for the elderly and hopes we may be able to make some moves in that direction next year.

8.45 p.m.

Mr. Loughlin: The Amendment is before the Committee. The Chief Secretary must not claim in support of his argument any intention for next year.


The Amendment is now out of the responsibility of the hon. Member for Worcestershire, South (Sir G. Nabarro); it is the Committee's Amendment, and the Chief Secretary must not take up the trailer argument.

Mr. Jenkin: The hon. Member is, I think, anticipating what I may have to say about my lion. Friend's trailer. He would be a rash Treasury Minister who in year 1 gave firm prognostications on personal allowances of any kind which might apply in the year 2. All I say is that I have taken careful note of what my hon. Friend the Member for Worcestershire, South said on the point, and we shall bear it closely in mind.
The purpose of the Amendment, which, as the hon. Gentleman rightly says, is now before the Committee, is to raise the age exemption limits. It may be helpful if I remind the Committee of what happened in the last two years regarding the age exemption limits. In last year's Finance Act, for 1971–72 we raised the age exemption limit for a single person to£504 and for a married couple to£786. The same Act made provision also for 1972–73, to raise them further, to£530 single and£825 married, to take account of the fact, that 1972–73 would cover a full year of the pension as increased at the October, 1971, up-rating.
Since then, we have made the historic decision to make annual increases in the national insurance pension. But it is not directly related to that that, although we fixed the level of the age exemption at the figures I have given for the current year, 1972–73, in last year's Finance Act, we are by this Clause raising the limits again, by£104, to a total of£634 for a single person and£929 for a married couple. It is worth noting that those figures are now, respectively,£130 and£143 above the level which applied in 1971–72.

Sir G. Nabarro: What mystified me was the reason for the£929. The increase for a single person was from£530 to£634, and for a couple from£825 to£929. In both cases, the rise is£104. Why is it uniform for both a single person and a married couple?

Mr. Jenkin: If I may say so, that is the key point of my hon. Friend's Amendment and of the Clause. In contrast to the position in earlier years, when the primary purpose of raising the age limits has been to make room, as it were, for the increase in the national insurance pension so that the increase in pension should not bring into tax those who were otherwise below the threshold and should not increase the tax burden on those who were just above it and were entitled to marginal relief, the purpose this year is different, namely, to ensure that those entitled to the marginal age exemption relief, that is, those just above the new limit, should receive a tax benefit equal to that going to the 2½million other taxpayers, namely, a sum of just over£52 a year, or just over£1 a week.
The reason why the amount is the same for a married couple as for a single person is exactly the same as the reason why the increase in the married allowance and in the single allowance has had to be the same this year. It is the administrative reason that this is a year in which the Chief Inspector's branch of the Inland Revenue is undertaking the recoding of every taxpayer for the purposes of the unified tax system. In such a year it would be quite impossible to take on board the additional recoding that would be necessary if the married and the single allowances were increased by different amounts and if the married age exemption limit and the single age exemption limit were increased by different amounts.

Mr. J. T. Price: This is very interesting and I am glad that I stayed to listen to this short debate. The Chief Secretary is saying that administrative convenience stands in the way of doing something that should be done for quite valid reasons on its merits. The House has never accepted administrative convenience as sufficient reason for not doing what ought to be done. I am not too strong on protocol, but I need make no apology for reminding the Chief Secretary that we do not accept administrative convenience as a reason. Arguments should be accepted on their merits. Administrative convenience would not be accepted as an excuse by many hon. Members on both sides of the Committee.

Mr. Jenkin: I should have chosen my words with even greater care than I did.
was most careful not to use the words "administrative convenience", because on a number of occasions I have said from the Opposition Dispatch Box exactly what the hon. Member for Westhoughton (Mr. J. T. Price) has just said, namely, that this is not a reason which the House of Commons takes to kindly. But in this case I would beg hon. Members on both sides to recognise that this is not a matter of convenience this year. This year there are the very special circumstances occasioned by what I think is not unfairly described as the historic reform for which we legislated last year—unification in income tax and surtax.
I know that hon. and right hon. Members opposite do not necessarily accept all the features of reform—we indicated our differences last night—but no one on either side of the Committee has done other than welcome this major simplification of our personal tax system. It will be very much easier for ordinary people to understand. The complicated earned incomes reliefs will disappear and will be replaced by a differentiation expressed as an investment income surcharge, the complexities around the border of surtax will come to an end, as will the two different tax systems of surtax and income tax.
The reform has been widely welcomed, but it requires a complete recoding of every taxpayer in the country. Personal allowances have to be uprated by two-sevenths to take account of the disappearance of earned income relief, and this requires a complete recoding. It is a massive operation. As I said in the small hours of this morning, the Inland Revenue has performed a notable task in clearing the decks and getting up to date, ready to undertake the recoding operation which will require some millions of man-hours during the latter part of this year. We were not prepared to let that stand in the way of our adjusting the allowances this year. On the debate on the Question, "That the Clause stand part of the Bill," we may come to the whole sphere of personal allowances. It was absolutely imperative, not just convenient, that we should give effect to the change by revision of the tax tables rather than by the recoding of the individual taxpayer. We cannot take on board this year any amendment which would require a significant volume of recoding. If the

Inland Revenue had an additional task imposed upon it, that would put in peril the unification exercise, which is one of the biggest operations—

Mr. Loughlin: That is a dangerous argument.

Mr. Jenkin: I do not think it is. It is essentially a realistic argument. I do not wish to make a political point in what has been a wholly non-political debate. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) said in his Budget speech in, I think, 1969 that a reform on these lines was something he would very much have liked to carry out.
One of the prices we must pay is the acceptance of the inevitable administrative constraints which the reform imposes. We must take sometimes politically difficult decisions in order to be able to get over the hump of work and carry the reform through.

Mr. John Hall: I fully understand, and sympathise with, the reasons my hon. Friend has given for not being able this year to do as much as perhaps many Members of the Committee may have thought he should do. But does this not mean that we can expect that the logical increases in the allowance will follow next year? Can we look forward to that?

Mr. Jenkin: I must not allow myself to be tempted to gaze into the crystal ball of my right hon. Friend the Chancellor and arouse any hopes or anxieties about what might happen next year.
My hon. Friend the Member for Worcestershire, South particularly asked why there was the odd figure of£929. This was the result of applying an increase in the age exemption of£104, to make sure that those entitled to the marginal age exemption relief received exactly the same tax relief as the general body of taxpayers, and to do it in such a way that for both single people and married couples entitled to the age exemption marginal relief we did not require a recoding exercise, doing it instead through the tax tables.
I am sure that from what I have said the Committee will realise that the Amendment would require a recoding which we just cannot take on hoard.


Therefore, while we all naturally feel sympathy towards the elderly—we all meet in our constituencies elderly people who bring us their problems—we cannot take this on this year.
My hon. Friend expressed his dislike for these odd figures, as I think he called them.

Sir G. Nabarro: Irregular figures.

Mr. Jenkin: It was my small daughter who said that she could not roll her tongue like that.
I share my hon. Friend's dislike of such figures. He will have noted that the figures in the personal allowances which we have provisionally fixed for next year for the unified tax system are all in multiples of five; we have rounded up to the nearest five. The rounded-up allowance for next year is provisionally£595 for a single person,£775 for a married couple,£235 and£265 for the three child tax allowances, and£130 for the additional personal allowance. These figures are somewhat about what would he reached by the application of the strict two-sevenths fraction. This is a direct reflection of exactly the same ambition as my hon. Friend expressed, to have round figures. It might be argued that they should all be multiples of 10. That was considered, but the additional cost of rounding up an extra£10 where necessary was very substantial.

Sir G. Nabarro: I do not wish to be fiscally pious, but may I commend to my hon. Friend that he should take a little more than short and faltering steps in my direction of absolute regularity by endeavouring to round up with figures of£100, not£10, which would make the matter vastly simpler, especially as we are embarking on a huge exercise of metrication?

Mr. Jenkin: It would also make it vastly more expensive.

Sir G. Nabarro: Not necessarily.

9.0 p.m.

Mr. Jenkin: I ask my hon. Friend to accept that that would be the case, though I cannot give him the figures.
My hon. Friend also referred to the margin between the pension and the tax threshold. That is indeed a factor that Treasury Ministers regularly bear in mind

when considering the size of the age exemption.
The hon. Member for Westhoughton raised the question of taxation of the occupational pension. Governments of all parties have accepted that the right principle to apply to occupational pension schemes is to exempt the build-up and tax the benefit, and that is broadly what we do. The taxpayer receives a tax relief on his contribution, but the pension is taxed. For the great majority of taxpayers over a lifetime that represents a much lighter tax burden than they would bear if they had to pay contributions out of net income but received the pension tax free. It is always open to anyone to make arrangements to pay regular contributions out of net income through a life assurance company or something like that and then to receive a capital sum which can be used tax free.

Mr. J. T. Price: I have been deeply involved over the years in the problem of the relationship of pension funds to tax liabilities. I have been to the appropriate department of the Revenue on many occasions to seek concessions on behalf of the contributors to pension funds. I drew the hon. Gentleman's attention to the fact that quite recently there has been an invention of a subtle kind in insurance. Insurance companies are now offering to the public contracts bearing annuity benefits plus capital sums, which are far more favourably treated under our present tax laws than are the orthodox pension funds, which have enjoyed these advantages at various rates since the Finance Act, 1921, which established the basis for all the tax reliefs. These recent developments are leaving the established and orthodox funds in a less favourable position than that enjoyed by people who are being advised today in other ways. This is something that I deplore and I hope that the hon. Gentleman will take my remarks seriously.

Mr. Jenkin: I always take seriously anything on this subject which falls from the hon. Gentleman's lips, because he knows a great deal about it. In 1970, the Labour Government made a major revision of the income tax rules affecting pension schemes and we modified this to some extent last year. But I note what the hon. Gentleman says and will bear it in mind.
I hope I have explained the situation satisfactorily to my hon. Friend the Member for Worcestershire, South. I hope also that, however reluctant he may feel, I have persuaded him that this year, for the compelling administrative reasons 1 have given, we are unable to accept the Amendment. I have explained what we have done in the Bill and I hope that my hon. Friend will feel able to withdraw the Amendment.

Mr. Dalyell: Having almost taken root on these benches for 18 out of the last 30 hours, I have an unsuppressable urge to be fiscally pious for a moment. The Chief Secretary has given me a lead in to say something which does not appear on this Amendment but which I have had an urge to say sometimes during these debates. That is to pay tribute to the way in which the Inland Revenue overcomes many problems and helps hon. Members who write to it.
Whatever other difficulties I may have presented to the Treasury, I have not had cause this year to write to it on behalf of a constituent. This is partly because of the excellent service from Centre One at East Kilbride. I say this because the Inland Revenue gets a great deal of abuse from all sorts of quarters and a lot of poor Press comment. Whenever the tax centre makes a mistake, it is blamed, but when, as it does in 99 per cent. of its cases, it does something right, it never gets praised. Whatever the Treasury may feel about the difficulties of setting up a computerised tax system like Centre One at East Kilbride, those of us who have had anything to do with it on a day-to-day basis know well where we stand and that anything we can do to help should be done.

Mr. Jenkin: I should like to express warm appreciation for those words of the hon. Member for West Lothian (Mr. Dalyell) and to thank him very much.

Sir G. Nabarro: I rise to express my limited satisfaction with the reply I have had from my hon. Friend the Chief Secretary. I had, of course, a strictly regulated and limited objective in moving my Amendment, which was to draw attention to the inadequacy of the proposed threshold for elderly people for income tax purposes, and to the need for a reappraisal of the whole system. I shall

consider that my limited and regulated objective has been quite fulfilled tonight and I am grateful to my hon. Friend for the generous and characteristically logical fashion in which he received my words. I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Patrick Jenkin: Before we let this Clause go through, perhaps I may make one or two points about it because it is an important Clause and I know that my hon. Friends would not wish it to go past without my saying something about the real benefits it confers upon the taxpayers.
One of the features of the tax reductions that the Government have made since they came into office, and of which by far the biggest is included in this Clause—the massive increase in personal allowances;£135 this year£is the way in which the great bulk of the direct tax cuts have benefited the ordinary people. Last year, the total reduction of Inland Revenue yield for 1971–72 was£256¾million, and£163 million of that represented the increase in the child allowances of£40 for each child. This year the figures are even more startling. Of the total reduction in the Inland Revenue yield for 1972–73—£1,070 million—no less than£960 million is attributable to the increases in the married and single allowances and a further£6 million to the increase in income limits by£104.
One can express this in a variety of different ways, but perhaps the clearest way, and one on which a number of speeches have been made, is that of the thresholds for income tax of ordinary people. In last year's Budget, and in this one, we have raised the tax threshold for a single man by£174 a year, or£3·34 a week; for a couple entitled to age exemption by£189 a year, or£3.63 a week; for a married couple with two children under the age of 11 by£277 a year, or£5·32 a week; for a married couple with four children under the age of 11 by no less than£379 a year, or 7·29 a week.
By any standard, these are massive tax reductions—massive increases in the threshold. We inherited in June, 1970,


an exceedingly difficult situation, with a very low tax threshold. It was this that inevitably ruled out dealing with the family poverty problem by means of the family allowance. It was this that created severe difficulties at the crossover particularly of the family income supplement, when it was introduced, and other welfare benefits with the tax system, and we have gone a long way to widening the area of the crossover by raising the thresholds for tax.

Mr. J. T. Price: Am I right in supposing that in quoting those striking figures we may be giving a false impression to the country? It is wrong to convey the impression either wilfully or carelessly that the figures mean that there is an additional tax relief of £2 at the lower end or £7 at the upper end. It means only that relief has been given of 38·75 per cent., or whatever is the standard rate of tax, on the increase in the threshhold. These figures are not the amount of the relief but the allowance on which tax relief has been given.

Mr. Jenkin: That is absolutely right. I have no wish to be unfair. During our debates over the last two years on this subject, and in the debate we have just completed, hon. Members on both sides have concentrated on the low threshhold. I thought it helpful, in considering the Clause, to concentrate on indicating by how much we have succeeded in less than two years in raising the tax thresh-hold. I do not conceal that this has been possible in a somewhat different economic situation from that with which our predecessors were faced but, nevertheless we promised that it would be done and it has been done. The Labour Party Manifesto of 1970 said:
The irresponsible tax bribes that the Tories now promise and threaten would wreck the economy.
Yet we have made the most massive tax reductions—often urged on by hon. Gentlemen opposite—and we have fulfilled our election pledges.
In two years we have reduced taxation by£3,000 million. Tax this year is£3,000 million lower than it would have been if the Labour rates had remained in force as we inherited them. This compares with £3,000 million by which taxation was higher by June,

1970, than it would have been if the 1964 Tory rates of tax had remained in force. The Government can be justly proud of their record in reducing the burden of taxation. The Clause contains the biggest single reduction in the burden of income tax in our history and I hope that the committee will accept it with acclaim.

9.15 p.m.

Mr. Loughlin: Our debate on the previous Amendment was a rational and sensible one. The hon. Member for Worcestershire, South (Sir G. Nabarro) presented his case in a restrained manner and, when I invited him to divide the Committee, I was pleased when he said that he would rather not. I did not want to place him in the embarrassing position of moving an Amendment against his own Government. In that debate we moved away from the yah-yah politics which have been a cardinal feature of the last two years of Tory Government. Whatever issue has been debated—whether it is inflation, unemployment, prices, wages—hon. and right hon. Gentlemen on the Government side have always said everything was the fault of the Labour Government. I thought that we had got away from that atmosphere, but the Chief Secretary to the Treasury returned to it without any need, because the Committee would willingly have passed the Clause. No one on the Opposition Front Bench sought to rise.
Then the Chief Secretary, seeking to make political capital out of the Clause, used figures which my hon. Friend the Member for Westhoughton (Mr. J. T. Price) pointed out were, if not fictitious, at least misleading. The hon. Gentleman spoke about the enormous reliefs from income tax people would have under the Clause. I wondered whether I had been in the Chamber either for the Second Reading of the Bill or for the Budget statement. The use of such figures is erroneous.
The Chief Secretary told us that the tax threshold has been reduced and he spoke about a £3,000 million reduction in taxation under the Tory Government. This is fair enough. Where has the money gone? It has not gone to the average man or woman. The Chief Secretary should substantiate his argument, because£1,400 million has gone somewhere, but not to


industrial or professional workers. It has gone to people with enormous incomes.
The £3,000 million and the 6d. reduction in income tax should be related to individual incomes. We should talk in terms of how much is received by a man on £1,000 as contrasted with the amount received by a man on £20,000. That is what a meaningful examination of the exemptions or tax remissions granted by the Tory Government would be.
I am remaining in order, Mr. Mallalieu, because I am dealing with the point made by the Chief Secretary; and apparently he was in order or you would not have allowed him to make it.

The Second Deputy Chairman: The hon. Gentleman has tempted me to my feet. Both sides have had a fair crack of the whip. Perhaps I should not have allowed matters to go so far. In the circumstances, both sides having had a fair crack of the whip, I hope that the hon. Gentleman will try to bring his speech to a conclusion on the question, "That the Clause stand part of the Bill".

Mr. Loughlin: Mr. Mallalieu, I am wholly in sympathy with the Chair in its present dilemma. The Chair allowed the Chief Secretary to finish. The Chair is in an embarrassing position if it does not allow me to finish. The Chief Secretary, in talking about the degree of tax reliefs which have been given, either under the Clause or in past legislation, should get the facts straight. The great mass of people have not received the benefits of the tax reliefs. They have suffered the imposition of the increase in the cost of living that this Government have imposed upon them.

Mr. Brian Walden: I was sitting quietly on the Opposition Front Bench, minding my own business and thinking of the extreme brevity of the remarks that I intend to make on a later Clause, and therefore thinking that it was very likely that I should be having a small port or brandy with my wife at about 10 o'clock, when suddenly the Chief Secretary rose with a rather fictitious set of figures and about as one-sided a version of what the Government have been up to as could be imagined. Regrettably, therefore—I trust that this will be a terrible

lesson to the hon. Gentleman and that he will not again make speeches on Clauses which are not opposed—I shall necessarily have to say a few words on the Clause. I promise to be brief, Mr. Mallalieu.
The Chief Secretary could claim even greater reliefs. No doubt if the inflation rate rises still further, with even more roaring inflation next year, the thresholds will be able to leap still further and the Treasury will be getting a massive return.
However, basically that is not really what I want to say. What I want to say to the Chief Secretary is this. It is an argument which never seems to get across in the way we discuss Finance Bills. I have pointed it out several times and I make one last attempt in the certain knowledge that no Treasury Minster will want to answer me. Very often Tories discuss taxation as if it were the only kind of impost which mattered: provided that one can say that such and such has happened in respect of tax, that settles the issue. It does not. One might say that being at the Treasury involves demand management, and what that involves at a time of 1 million unemployed. An increased rate is to the ordinary family in a council house a tax. I know that technically it is not a tax. I know it is not. It is a change. But to the ordinary person it is the same thing. If Ministers are to come to the Dispatch Box with all their calculations about how much they by their tax concessions have benefited the British public they ought to give a fair picture and tell us how much they have disadvantaged the British public by being unable to control prices, especially food prices, and how much they by their increased imposts have disadvantaged the public.

Question put and agreed to.

Clause 63 ordered to stand part of the Bill.

Clause 112

ESTATE DUTY: RELIEF FOR SURVIVING SPOUSE, CHARITIES AND CERTAIN INSTITUTIONS

Question proposed, That the Clause stand part of the Bill.

Mr. Brian Walden: Since we are now saying "Goodbye" to this Bill—[HON.


MEMBERS: "Not yet."]—downstairs in this Chamber, although we shall he saying "Hello" to it in Committee upstairs, I should, albeit briefly, like to say, speaking for myself but also, I think, for my colleagues, that the debate on the Bill has been conducted here between the Front Benches with extreme good humour, and I would particularly congratulate the Chancellor on that from two points of view.
I was a PPS at the Treasury in the old days and I know what being a Chancellor of the Exchequer is like. It is rough, and a Chancellor has an enormous number of responsibilities. The right hon. Gentleman has come frequently to this Committee, and that I appreciate, and he has always come in a good mood, unfailingly courteous. It is true of his colleagues as well, and I should like to make that point however much we may disagree with particular things which are in the Bill.
That thing with which in particular we disagree—we wish to end on a niggle—is estate duty relief——

The Chancellor of the Exchequer (Mr. Anthony Barber): Since I do not propose to reply to this debate I should like to intervene very briefly, and I thank the hon. Gentleman for allowing me, to reciprocate what the hon. Gentleman has said and to pay my respects and to give any thanks to those who on the Opposition Front Bench have, I think, gone out of their way on this occasion to enable us to conduct our proceedings during these six days in a very civilised way indeed.

Mr. Walden: I thank the right hon. Gentleman very much indeed. It is things like that that make the party activists worry about us, so it may be best for me to interject some unpleasant controversy into our proceedings—but very briefly, given the hour and given the hard debates we have had, especially last night.
We of course do not like estate duty relief which goes to public schools. That is why we put down an Amendment. It was to stop this proposed relief going to public schools. The Amendment was not selected, but I want to say two or three things about this proposal in the Clause.
Firstly, we have in this country always had a charities problem. I made some reference a moment ago to the fact that I was a PPS at the Treasury. I used then to dread debates on charities because they invariably meant that I ran to and fro, because the Chancellor, with all due respect to him, had a somewhat vague grasp of what was and what was not included in the provisions relating to charities. I see the present Chancellor nodding, so giving me some reason to think that even he is not clear on this matter either. We have always had a problem on the matter of charities, and the problem is a fiscal nuisance.
It does not end there. We call "public schools" what the Americans call "private schools". It adds to the definitional problem that we have many religious schools and schools of other kinds which are not directly what I and others mean when we use the term "public schools" in ordinary conversation. They are not "public" schools, but they are, nevertheless, included in the definition as well.
All in all we have a difficult problem but, nevertheless, the Labour Party wishes to complain. We do not wish to see estate duty relief extended to cover what the Americans call private schools, and what I call non-religious public schools charging fees to supply children with an education which they ought to be given by the State.
We shall not tonight argue whether public schools should or should not exist, and, if they do, under what conditions they should exist. All I say is that if they are to exist those who keep them in existence, and the governors and governing bodies of them ought not to expect to get tax concessions for a form of education which is highly controversial and which, in the view of this side of the Committee, discriminates against the best interests of the population because of the amount of resources which it takes.
We fear that that is what is happening under the Clause, but we shall not press the matter to a Division. We dislike this provision, and we should like to hear from the Government whether they intend to do anything to mitigate the consequence which we see, namely, that public schools are likely to get tax-free bequests which we think they ought not to get.


On that point of principle, from this side of the Committee I say good-bye to the Bill and look forward to seeing our friendly enemies upstairs on another occasion.

Mr. Norman Tebbit: If I may intervene briefly, and perhaps lose any friends that I have in the Committee for doing so at this stage——

Mr. Loughlin: The hon. Gentleman has no friends.

Mr. Tebbit: It is kind of the hon. Gentleman to say so.
I should like to draw my right hon. Friend's attention to paragraph (c) which refers to the relief to be given to a deceased widow or widower. I wonder whether my right hon. Friend would consider extending such relief to an orphaned child. A surviving spouse may be in need of this concession, and it is a wise one to have made, but the need of a child left without parents may be very much greater.
I hope that my right hon. Friend will give serious consideration, either in the Bill or in a subsequent one, to making available to an unfortunate orphaned child the concessions which he has made available to the surviving spouse.

Mr. Piers Dixon: As hon. Members know, I am no great advocate of measures to make it easier for wealth to be passed from one generation to the next, but I have no hesitation in supporting the two main provisions of the Clause.
In their public statements hon. Gentlemen opposite often imply that it is more blessed to receive than to give. I believe, on the contrary, that it is more blessed to give than to receive. The problem is that every gift involves a receipt. In this Clause we have for once a wonderful opportunity of making gifts possible by individuals which do not involve receipts by individuals.
I was particularly glad to see this provision introduced, if only because it appears in my party's election address in dealing with charities. Perhaps we are coming more and more to have government by manifesto. I should not regard that as a bad thing, and my party has been true to what it said.
Charities have always benefited from the covenant system as it relates to income, and now we are in the fortunate position that, from the point of view of their capital, charities receive a concession on capital gains tax, and are now to receive a concession on estate duty.
I commend to my right hon. and hon. Friends one small aspect which applies in the United States and which may be considered for this country in some subsequent year. In the United States, if a legatee wishes to waive his rights in a deceased's estate, he can arrange for that sum of money to go to a charity of his choice. That is not my understanding of the Bill's provisions. I should like that to be considered in another year.
There may be some who consider that we are giving too many concessions to a deceased's spouse. But we should consider this matter in a European context. Estate duty—and I am not talking only about the deceased's spouse provision—is very much higher in this country than it is in the Common Market countries. Belgium is the only country where it approaches our level. There it is about 40 per cent. per capita of what it is in Britain. For every £100 which goes on estate duty per capita in Britain,£40 goes on it in Belgium. In the Netherlands, France and Italy, it is about 20 per cent., and in Germany it is about 10 per cent.
The reason why that is so is basically because children have advantages under inheritance tax systems in Europe which they do not have in this country. Hon. Members on the Opposition benches will be glad to know that I have no particular brief for that type of concession. But in Continental Europe, there are also advantages for the spouse. That is true of all the major European countries. Italy is the only country where children have an advantage over the widow. I would not advocate in the slightest that we should follow an Italian pattern.
The wonderful thing about Britain is that from 1972 it will be the one country where a widow will have an advantage over the children. I have no hesitation in congratulating my right hon. and hon. Friends on having introduced this Measure. This is not a gift from someone to someone else who has the receipt; in all moral and humanitarian terms, the


money is the lady's own money which she is receiving anyway. I have no hesitation in supporting the Clause.

Mr. Loughlin: I am fascinated. As I understand it, we are dealing with Clause 112 which relates to
Estate duty: relief for surviving spouse, charities and certain institutions.
I am glad to see the Chancellor of the Exchequer nodding his head in agreement with my contention as to what we are debating. The hon. Member for Truro (Mr. Dixon), in spite of the fact that not one word has been uttered from this side of the Committee in opposition to the Clause, began his speech by suggesting that the Opposition sometimes believe that it is more blessed to receive than to give, whilst he and his hon. Friends believe that it is more blessed to give than to receive.
That is a fantastic situation. It is true that the hon. Member is very young in terms of service in the House of Commons and has not been a Member for long. My estimate is that he will not be here much longer. I do not know how he can say what he has said in a Committee of this kind on an issue which is relatively non-controversial. Even the £15,000 referred to really means £30,000. This Clause is for the benefit of people who are much better off than the majority of people I represent. It is deplorable that a Member, with all the nastiness, wrapped in sugared phrases, that we are accustomed to expect from hon. Members opposite, should use a Clause of this kind to make political capital.
I always try to keep in order in the Chamber. I never want to challenge anyone. I do not wish to transgress the rules of order, because this is a very narrow Clause, but what we have heard tonight is typical of the type of Tory Member we are getting here who is completely immoral and unscrupulous and is prepared to use a Clause like this to make political capital when there is no reason for doing so.

Mr. Nott: The hon. Member for Birmingham, All Saints (Mr. Brian Walden) raised the question of public schools and the relief which such schools which are charities will obtain under the Clause. We do not believe that there is any justification for singling out one type of

charity in order to exclude it from the benefit of relief given to charities generally. The term "charity" covers several fields, including the advancement of education. This purpose has been regarded as charitable in law in this country for centuries.
I am as aware as the hon. Gentleman of the suggestion that charities should be defined in a more restricted way for tax purposes. This proposal has been put forward from time to time. The Labour Government were approached on this issue and they did nothing about it. Successive Chancellors of the Exchequer of both parties have not felt able to distinguish between one sort of charity and another. No definition has suggested itself which would command the specifically wide measure of public support which would enlarge or narrow the definition.
In the last resort, this must be a matter of political judgment. Even if it were possible to introduce a more restricted definition, the Government would not agree that there was any case for cutting out public schools as charities. These institutions contribute to the advancement of education in this country, which must be regarded as an outstandingly worth while objective.
9.45 p.m.
My hon. Friend the Member for Epping (Mr. Tebbit) raised an interesting and imporant point relating to the surviving spouse. He was anxious that we should give consideration to another category which raises hon. Members' sympathy. My right hon. Friend the Chancellor noted my hon. Friend's remarks, and the comments of my hon. Friend the Member for Truro (Mr. Dixon) These matters will always be borne in mind. Some of the points raised by my hon. Friend the Member for Truro are relevant to the Green Paper on inheritance tax, and I have no doubt that many of the topics to which he referred will be discussed when that Green Paper is debated.
The Clause implements the proposals in the Budget speech. The three prongs of the Clause, property going to the National Trust, the National Gallery, the British Museum and certain other bodies concerned with the preservation of the national heritage should be free from


estate duty, and properties going to charities to a maximum of £50,000 and properties going to surviving spouses to a maximum of £15,000. These are three worth while objectives. Subject to the small proviso made by the hon. Member for Birmingham, All Saints, the Clause will be welcomed by the Committee.

Question put and agreed to.

Clause 112 ordered to stand part of the Bill.

Bill (Clauses 1, 9, 12, 63, 64, 71, 73, 110, 112 and Schedule 4) reported, with an Amendment; to lie upon the Table.

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Clegg.]

WATER RESOURCES BOARD

9.47 p.m.

Mr. Kenneth Lewis: The report of the Water Resources Board for 1971 is an innocent enough report, but within it I may be able to discover some hidden horrors. At a time when the organisation of the water supply is just over the hill, or just on tap, if that sounds more appropriate, the report gives me an opportunity to draw attention to one facet of the water supply problem which many take for granted. Pure water is costly, but it is necessary to living. It does not come free although it may appear to do so.
Most of the money in this sphere is spent by the river boards, but within the report are mentioned two interesting amounts of expenditure. The first amount is on research for desalination and the other is for the feasibility study which is presently taking place on the Wash barrage. Both matters are important because in a decade or so they may help us to avoid having to build reservoirs. One hopes that research in both spheres will be successful and that the Government will be able to make money available after research for implementing whatever is proposed in that connection.
In the introduction to the report there are some interesting comments on the

administrative problems facing the many water authorities in England and Wales. These problems will be the subject of legislation in due course. One hopes that the Minister will be open to a certain amount of persuasion on the size of some of the new authorities which are proposed. Even water regions can stretch too far and some regions might be fitted a little better into the proposed new local government pattern.
The most interesting comment which is related to what is said generally in the introduction to the report appears at page 45. This concerns a reservoir being built in my constituency. If one reads paragraph 215 on page 45, one then has to ask the question: will Empingham Reservoir fill the need in the South-East of England well into the 1980s?
Paragraph 215 states:
It can do this only if its resources can be deployed over the whole area either directly or indirectly by enabling existing resources (notably Grafham Water) to be deployed in new ways.
When the private Bill for this reservoir was pushed through the House—it went through with only 10 votes—no one said that there would be any difficulty in disposing of the water which was to be provided by Empingham Reservoir. It was recognised that adjustments between various water boards in the take-out from Grafham Water and Empingham Reservoir together, when complete, would be necessary. These adjustments require negotiation. Presumably there had to be some financial accommodation between the various boards and at the end of the day there had to be agreement.
Looking at paragraph 220 on page 46, and taking it in conjunction with what appears on page 45, we see as follows:
Negotiations for a bulk supply agreement have been in progress…for the past two years.
That means that negotiations had been proceeding almost since the procedure started for taking the Bill on the Empingham Reservoir through the House seeking arrangements to take out the water and disperse it in the South-East. Yet the boards have failed to come to any agreement.
There is not time in a short Adjournment debate to go into the technicalities of this, even if I could. Suffice again


to read from the report at page 47, paragraph 225:
These basically simple transfers of water generate disproportionately difficult financial and administrative problems which can be solved, if at all, only by long, complicated and time-consuming negotiations between the parties concerned.
Then comes the important punch line:
It remains to be seen whether in the present case they can be solved in time to ensure that full use is made of the new reservoir in its early years.
This, if nothing else, is complete justification for the Government's proposals for the reorganisation of water supply. It confirms, albeit too late, the fears which I and others have expressed about the need for such a large take-up of land for the Empingham reservoir.
We were told at the time that the private Bill was going through the House that it was vitally necessary to provide water in the early years. We are now told in the report that this massive expenditure, the destruction of almost 4,000 acres of agricultural land and the uprooting of far too many farmers is for a reservoir the full use of which is, to say the least, doubtful, and certainly in the early years extremely doubtful, if not unlikely.
We shall be able to fish in We shall be able to sail on it. We shall be able to ride round it and walk round it. We shall be able to picnic beside it. We shall be able to look at it. But it will probably be that a good part of that massive reservoir will be doing no good in terms of its original purpose, that is, supplying water to the South-East of England.
So much for believing the experts, for it was the experts who sold us the reservoir. The Empingham reservoir was approved by the House because the experts said that it was vital, and the sooner we had it the better. They agreed that, in the long term, we might have other supplies—they hoped that there would be other sources of supply available in the long term—but they said that, in the short term, Empingham was vital.
There is another matter of importance to my constituents. The construction of the reservoir, this great undertaking, is being done by the Welland and Nene River Authority. That Authority pro-

mated the Bill originally, and it made promises about the compensation which it would pay to the farmers. In its submissions to the Committee, the Authority indicated clearly that it would be as generous as it could be within the law.
What the Welland and Nene River Authority said in the Committee proceedings was calculated to get the Bill. In my view, it was calculated to get consummation of a marriage even before the well-endowed bride was at the altar. Sometimes, that is called rape. Sometimes, it is just called opportunism. The trouble is that one can do nothing about it afterwards. Nevertheless, in such a case, one would expect that, afterwards, the bride, who has to obey because she has been caught, would be cherished and looked after.
What is the situation at Empingham where this reservoir is being constructed? The compensation payments for land taken for reservoirs are disgraceful. But that has nothing to do with any river authority; it is the law of the land. I acknowledge that. But a comparison of what farmers receive for their land for this reservoir and what people receive for selling land for building shows that the compensation to the farmers of is land is abysmal. What is given s no more than a willing seller would get from a willing buyer in the open market. It is not compensation. In my view, it is confiscation.
The Minister intends to improve compensation payments, and there is to be legislation for this purpose in due course—about time, too—but it will be too late for Empingham, too late for the farmers in my constituency, unless the Minister makes it retrospective. He ought to make it retrospective. In some areas of government, in payments to industry, for example, the arrangements are retrospective.
There is one respect, however, in which any river board, and especially the Welland and Nene River Authority, may make extra payments within the law. They can be generous within the law. I refer to the payments which a river board is allowed to make for disturbance, the payments which are called compensation for injurious affection—a very suitable term for a bride who has been carefully raped.


The Welland and Nene River Authority has always clearly indicated that in this respect it would go to the utmost, that it would be generous. In my submission, it is not being generous, despite the overall impression which it gave to the Committee when promoting the Bill. The Authority pays as little as it can get away with. It pays what it must—no more and no less. Shylock——

It being Ten o'clock, the Motion for the Adjournment of the House lapsed, without Question put.

Motion made and Question proposed, That this House do now adjourn.—[Mr. Hawkins.]

Mr. Kenneth Lewis: Shylock sought to take what he must. The Authority gives as little as it must. In my view this is not generosity. Would anybody but a Shylock rest, as the Authority does, on the strict letter of the law on land value and then on top of that cheespare on the disturbance payments? Would anybody but a Shylock charge a farmer 4 per cent. interest as a rent on land that it has bought early—and I admit that the Authority bought it early for the farmers' benefit, but it has also bought it for its own benefit in the long term. The reservoir needs the land and certainly the farmer did not want to sell it in the first place. Yet the authority is charging a 4 per cent. interest as equivalent rent. There is not much cherishing of the bartered bride in that, and there is not much generosity about it.
Would anybody but a Shylock charge a farmer the authority's legal charges as well as his own on the transfer of his land? The Welland and Nene River Authority has farmers sitting on its committee's and on the sub-committee which is dealing with the reservoir. Some of these farmers are very rich. Many of the farmers who are being dispossessed of their land are modest and some of them are poor. I suggest to the committee skinflints that they should be ashamed of themselves at the way in which they resisted the suggestions that I have made from time to time that they should go out of their way to pay the utmost within the law, the utmost in those areas where they can be generous, to those people who are losing their land.
In the report of the Welland and Nene River Authority for 1970–71 the appendix sets out the recreational prospects for the Empingham reservoir. They include fishing, boating, riding and walking. Nine thousand cars a day may visit the area and there will be provision for caravans. There will be new roads, a 3,000-vehicle car park and a nature reserve.
This is splendid. It is very good for the Minister responsible for sport. It will he very good for the urban communities who will enjoy the facilities. But to the dispossessed farmers what? They get nothing from the revenues of the car park and they cannot trade in the area to make up for what they have lost. They are entirely dependent on the good will of the authority to see that they get the best possible deal out of their dispossession. In the authority's annual report it says that the Empingham reservoir
is the largest project undertaken by any river authority and the biggest man-made lake in England.
The way in which the authority has been conducting negotiations in recent months indicates that its heart is not as great as the project in which it is involved. The owners and the tenants are making a sacrifice in order to complete the project and make it worth while.
The authority is independent of the House and there is nothing we can do. Only public opinion can be brought to bear upon it. I find it sad that it should resist accepting the obligation which is clearly upon it in moral terms to do the best it can for the people who will have to get out of their work places in order that the authority can create the reservoir. The Secretary of the authority, Mr. Ackroyd, sent a letter to a farmer in my constituency implying that if his M.P. did not stop his criticism the authority would have to consider withdrawing whatever privileges it was providing. I consider that was an attempt to interfere with my parliamentary duty.
Apart from that, I was disappointed to think that this gentleman had obviously no conception that when land has been taken on the terms that the authority has to offer—I admit that it has to offer them—nothing it can do that is generous should be other than a pleasure. It is not my job to point out its duty. But


it is clearly my obligation to try to see that it keeps faith with its promises and the total impression it gave when its Bill was before a Committee of the House. Its duty is to carry the law as far as it can in providing for the farmers the utmost compensation. Instead, it is being mean. For the authority to suggest that it is providing a privilege to the farmers it is dispossessing—for example, by making early financial settlements or any other minor accommodation—is not only arrogant but insensitive beyond belief.
The danger to the House and democracy is that it is responsible to no one. Eventually, when the Minister introduces his new legislation, at least it will be responsible to someone.
It is not fair, right or acceptable generally that when an enormous enterprise is created that will provide water for millions of people in the South-East of England the farmers and small landowners being thrown off their lands should bear the kind of burden that is imposed upon them. Still less do I think that the authority involved in the enterprise should fail to understand their real problems. The authority needs a proper sense of priority and needs to treat public accountancy with a sympathetic outlook. My hon. Friend should see that it acts in this way.
We have, I hope, the last of the massive reservoirs on the stocks in my constituency. I hope we shall learn lessons from the way in which this project has been dealt with financially, and that what I have said tonight will help in that connection.

10.9 p.m.

The Under-Secretary of State for the Environment (Mr. Eldon Griffiths): I am very glad that my hon. Friend the Member for Rutland and Stamford (Mr. Kenneth Lewis) has given us this opportunity, though at a late hour, to discuss the eighth Annual Report of the Water Resources Board. He has, as always, eloquently spoken up on behalf of his constituents. He has dealt essentially with two main points—the possibility of delay in getting this important reservoir filled and into operation and whether compensation to his farming constituents is adequate.
Before I come to those two main points, I should like to remind the House briefly of the policy background. I begin by quoting the Board's own introduction:
The most important issue left unresolved in the report is whether separate single-purpose authorities should continue to look after public water supply and sewage disposal, and river authorities to manage water resources, or whether all these functions should be brought together in the charge of a number of multipurpose authorities".
Within a few weeks of the presentation of the report, and before its publication, the Government had announced their proposals for the reorganisation of the water industry. As my hon. Friend knows, and I think favours, we came down in support of all-purpose authorities. Our decision to do that rests essentially on four main objectives.
The first is to secure an ample supply of water for people, for industry and for agriculture. We are faced with a demand which is expected to double before the end of the century, and it will not be easy—it certainly will be expensive—to meet that rising demand.
Secondly, we need to provide adequate sewerage and sewage disposal arrangements to meet the rising demands for housing, for new and expanded industry and for more intensive methods of farming. This, too, will be expensive.
Thirdly, we have set our hand to the task of cleaning up our rivers. The River Pollution Survey shows that since 1958 the mileage of grossly polluted rivers has fallen by about 25 per cent. A start has been made, but it is nowhere near enough. We must, we can, and we intend to, do better, for grossly polluted rivers and estuaries are no longer tolerable or necessary in today's environment.
The fourth dimension of our strategy is the opening up of all our inland waterspace—rivers, canals, lakes and reservoirs—for recreational and amenity purposes and for nature conservation.
To weave these four strands of policy together and give proper weight to each, we shall require new administrative machinery.
We cannot go on with the present multiplicity of authorities. The Government's proposals therefore involve the formation of 10 all-purpose regional water authorities, each of which will be responsible within its own territory for all


aspects of the hydrological cycle. I take my hon. Friend's point about the very large size of some of the proposed regional water authorities, and we shall look at his views and those of others before making any final decision.
I turn now to the Board's report in more detail. I note that it says that increased demand for water makes increased storage capacity essential, indeed, inevitable. But neither the Board nor the Government would wish to see any of our farmland or any other land flooded if there were any acceptable and practicable alternative.
The report therefore, quite rightly, discusses any possibilities that may reduce the acreage of land that may otherwise require to be flooded, and those possibilities include the controlled management of underground water bearing strata—we are studying that intensively—for example, in the Great Ouse catchment and the artificial recharge of aquifers, on which experiments are in hand in the Lee Valley and in Nottinghamshire. There have also been studies of estuarial storage in Morecambe Bay and the Dee Estuary, and, of course, there are the very large and to me exciting possibilities of the Wash. My hon. Friend and I have participated in debates from time to time in pressing the case for studies to be made of the Wash, and he will join me in thanking my right hon. Friend the Secretary of State for having agreed that these should now go ahead. We all hope that the studies now under way will lead to the best of prospects. It remains to be seen.
Future developments may also call for long distance water transfer systems. The Ely Ouse-Essex transfer scheme is one such and there will no doubt be others. I assure my hon. Friend that we are also continuing to study the possibilities in desalination. But when all these possibilities have been examined, the inescapable fact remains that more inland reservoirs will be required from time to time, and that brings me of course to Empingham.
Empingham reservoir and Grafham Water are seen in the report as a possible source of supply for North Buckinghamshire, which as my hon. Friend knows will include the new town of Milton Keynes. But the report also refers, as my hon. Friend did, to the financial and

administrative difficulties which face the present undertakings in reaching agreement about what ought to be a basically simple engineering solution to a problem of supply. I accept what my hon. Friend says about a long time having been taken to reach a decision. I recognise his concern about the need to get the job done in time.
North Buckinghamshire falls within the territory of the proposed new regional water authority for East Anglia. I believe that the regional water authorities, with their all-purpose powers, will be able to resolve these problems more rapidly than the present fragmented arrangements. Both the reservoirs of course will fall within the territory of the East Anglian water authority and there seems to be little doubt that the new authority would regard a connecting pipeline or aqueduct as a necessary feature of its long term regional distribution network, particularly to the south and east.
It may be that the present undertakings themselves are already reaching towards this conclusion. I can tell my hon. Friend that an immediate decision is not called for on that distribution point. The Empingham reservoir will not commence to fill until 1975. But I note paragraph 225 of the report, to which my hon. Friend drew attention, and recognise the force of the Board's argument that agreement on what is to be done ought not to be delayed until reorganisation has taken place. Therefore, my Department is in touch with the authorities concerned and we will seek a resolution of this question by the end of this year.
My hon. Friend also dealt with compensation and he has of course been in touch with me over recent months about the arrangements which the river authority is making to compensate land owners. He has made it crystal clear that he is not happy with those arrangements. As he said, when their Bill was before the House, counsel for the promoters promised that the river authority would
…be not merely as fair as the law requires but as generous as the law permits.
I can confirm that they told the Private Bill Committees in both Houses that they would do this in three specific ways. First, they would be willing to negotiate and complete purchase of land at an


early date, whether or not it was required immediately. I think my hon. Friend will agree that they have discharged that obligation.

Mr. Kenneth Lewis: I re-emphasise that they have discharged that obligation but they are charging an interest to the farmer while he continues on the land.

Mr. Griffiths: I note that point.
Secondly, they undertook that the occupier, whether owner or tenant, would be allowed to continue to occupy the land on very favourable terms until it was physically needed for construction purposes. Third, the promoters would purchase by agreement additional land outside the limits of deviation. I have been assured by the river authority that it stands by these pledges and is honouring them.
I was surprised to hear my hon. Friend say that there had been a suggestion that the terms of compensation might be less generous in the event that he as the Member of Parliament for the constituency should seek to intervene to protect his constituents. He will understand that I can make no comment upon that, save only to say that I was surprised to hear in the House that this could happen. I have the assurance of the river authority that it stands by its pledges.
My hon. Friend will also know that the construction of the reservoir is a matter for the promoters and not for the Government. I heard what he said about Shylocks and skinflints and about the alleged lack of generosity that had been displayed, but on that point I can only say that the compensation issue is not one in which my right hon. Friend has any locus to intervene.
Where a settlement cannot be reached by agreement, the case may be referred to the Lands Tribunal for a determination. No one need fear that he will get less than the fair sum properly due to him under the law if he were to go to the Lands Tribunal. My hon. Friend knows of the discussions in the course of the Trent River Authority's 1971 Act which bore on this point. Under a section of that Act payments could have been made over and above those to

which people displaced would normally have been entitled under the statutory code. The Government thought that was wrong. That is why they opposed the Clause. Why should people in just one part of the country be entitled to extra payments, and then only when the acquisition is made by one authority among others? If extra payments are justified, our view is that they should be available over the whole country.
My hon. Friend knows that we are engaged in a comprehensive review of the compensation code. I note his point—it is a view which I share—that the present arrangements for compensation are inadequate, but the review includes the position of tenant farmers, and we do not wish to pre-judge the outcome of that review by making partial changes in advance. I hope that my hon. Friend will await the White Paper which my right hon. Friend has promised. I cannot say that there is a prospect of retrospection being built in, as he urged, but I am sure that the White Paper will go some way towards meeting the desire which is shared on both sides of the House for compensation to be fairer than it is at present in many cases.
My hon. Friend also knows of the possible use of Section 22 of the Agriculture (Miscellaneous Provisions) Act. The Section was designed to put farmers on the same footing as business tenants who received compensation payments under discretionary powers. Section 22 was used briefly to make payments to tenant farmers on the basis of the special provisions in the Agriculture (Miscellaneous Provisions) Act, 1968, but it is now used by Government Departments only to make payments to those who have no statutory entitlement; for example, to licensees and 364-day tenants.
The Government's policy is that discretionary powers such as Section 22 should be used only to provide compensation where no statutory entitlement exists. River authorities are independent bodies. How they use the discretionary powers of Section 22 is a matter entirely for them. I have no doubt that the Welland and Nene Authority is perfectly well aware of this provision. It knows what it can do, and it must decide whether or not to do it. I am sure the authority is aware of my hon. Friend's concern. If it is in doubt, it can be seen from


his speech tonight which will appear in tomorrow's HANSARD.
Reservoirs, as I know from my own constituency, are inevitably contentious matters. I sympathise with all those who are affected, and in particular with those who run the risk of losing their farm land. There are difficulties and sometimes hardship that have to be faced, and those whose land is taken or threatened have a right to expect that their cases will be dealt with considerately and with understanding, both by those whose responsibility it is to see that they receive the fair treatment and just compensation for which the law provides, and also by those from whom they seek advice. To raise false hopes of exaggerated claims can only add to their distress and must in the end do them a grave disservice.
For my part, I believe that, with generous desire to meet the difficulties of the farmer, on the one hand, while accepting the statutory duties of the river authority, on the other, there is a way in which common sense and a decent regard for one another's sensitivities and difficulties can go a long way to resolving this problem.

Mr. Kenneth Lewis: Would it not be rather nice if, for a change, an Authority of this sort decided to be so generous that it might find itself in difficulties with the law? My hon. Friend has suggested

a number of possibilities whereby the authority could take action under the Agriculture (Miscellaneous Provisions) Act. He indicated what the Ministry did and said that the authority did not have to do what the Ministry did. My hon. Friend said, in effect, as I understood him, that it would be rather helpful to do something under that Act or to give additional payments for injurious affection. It would be at least better to do that than to take the opposite line, which is that of saying, "We are fearful to move in case we go over the top with the law."

Mr. Griffiths: My hon. Friend will not expect me to suggest that a river authority should sail close to the wind with the law, let alone press matters to a point where my Department might wish to object. I can only repeat that this is essentially a matter for the river authority. I am sure that the river authority is well aware of the pledges which were given in its name in the House. It is well aware, too, of the possibilities that may be open to it under the law. It is, however, for the authority to judge how best to manage its own affairs.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past Ten o'clock.